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Warren, senators press auditor KPMG to explain how it missed Wells Fargo's illegal activity

MARKETWATCH 8:56 AM ET 10/28/2016

U.S. Senator Elizabeth Warren, the Democrat from Massachusetts, is pressing Wells Fargo's(WFC) independent external auditor KPMG to reveal why it failed to identify massive unauthorized account-opening fraud at the bank.

Warren and three other senators have asked the global firm in a letter (http://www.warren.senate.gov/files/documents/ 2016-10-27_Ltr_to_KPMG_re_Wells_Fargo_Audits_FINAL.pdf) sent Thursday to explain what it knew, and when, around the fraud that resulted in a $185 million fine for Wells Fargo(WFC) from the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Los Angeles City Attorney.

Read:Senators to put Wells Fargo(WFC) CEO Stumpf on the spot (http://www.marketwatch.com/story/senators-to-put-wells-fargo- ceo-stumpf-on-the-spot-2016-09-19)

KPMG should know Wells Fargo & Co.(WFC) well. It's been the bank's independent external auditor for more than 85 years, and for Wachovia, before Wells Fargo(WFC) swallowed that failing bank during the financial crisis.

Warren, along with fellow Democrats Sen. Bernie Sanders of Vermont, Sen. Mazie Hirono of Hawaii, and Sen. Edward Markey of Massachusetts, wrote KPMG CEO and Chairman Lynn Doughtie to raise questions about the firm's failure to identify the millions of dollars in unauthorized bank, credit and debit card account openings that occurred while it audited the bank's financial statements from between 2011 and 2015.

"KPMG conducted audits assessing Wells Fargo's(WFC) internal control over its financial statements ... but none of KPMG's audits identified any concerns with illegal behavior," wrote the senators.

KPMG's annual audits of Wells Fargo(WFC) for the years 2011 to 2015 gave a clean auditor's opinion and said the bank had " maintained ... effective internal control over financial reporting," the senators wrote.

"But your firm's failure to identify the illegal behavior at Wells Fargo(WFC) raises questions about the quality of your audits and the effectiveness of the implementation of these Sarbanes-Oxley requirements by the Public Company Accounting Oversight Board."

The Public Company Accounting Oversight Board is the independent regulator for public company auditors created by the Sarbanes-Oxley Act of 2002.

The bank's stock price declined more than 10% in the days after the settlement with federal regulators. Wells Fargo's(WFC) then-CE0 John Stumpf resigned in the wake of the proceedings. The bank took back unvested stock options from Stumpf and Carrie Tolstedt, the executive responsible for the division where the illegal activity occurred.

See also:Wells Fargo CEO's $41 million ranks only third among executive-pay clawbacks, forfeitures (http:// www.marketwatch.com/story/wells-fargo-ceos-41-million-pay-forfeit-is-neither-the-biggest-nor-the-toughest-clawback-2016- 09-29)

The senators asked KPMG whether it believes any Wells Fargo(WFC) employee mislead any of its audit team about the scope or impact of the unauthorized account openings. They also want to know if KPMG is aware of any disciplinary actions by the Securities and Exchange Commission or the PCAOB against the firm for missing the fraud. Finally, the senators asked if KPMG stands by its clean audit opinions for the time period.

KPMG has until November 28 to answer the senators' questions.

-Francine McKenna; 415-439-6400; [e-mail]


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