Chattanooga's Fire and Police Pension Fund is suing its trustee, claiming the bank provided inaccurate information and violated its fiduciary duty by keeping rebate checks for placing pension investments in certain funds.
Wells Fargo, which is already struggling to get past improprieties that led to costly penalties coming out of the housing collapse a decade ago, admits that errors were made last year as trustee for Chattanooga's pension for retired police officers and firefighters. But the bank said the problems were fixed and the rebate fees were put back in the fund.
"We acknowledge that because there was a change directed by the client in 2017, we made an error in setting up the revenue sharing associated with that change appropriately and the revenue share rebates did not occur as intended," said Leslie Ingberg, vice president of corporate communications for Wells Fargo. "We are sorry this error occurred, and upon discovery the issue was fixed and the total revenue share received from the third party fund companies (approximately $15,000) was returned to the pension fund."
But the police and fire fund board said in a statement that Wells Fargo may have "similarly harmed" other accounts in Chattanooga and other investment accounts.
"For the past nine months the board of directors of the Fire and Police Pension Fund of Chattanooga has been investigating potential fraud and overcharging by Wells, its trustee, in connection with compensation paid by mutual funds to Wells," the pension fund said in a statement published Thursdway in The Wall Street Journal. "Wells's answers have changed over time revealing ever-greater amounts of undisclosed revenue sharing, systemic errors and incomplete records. The Board has lost confidence that the answers provided by Wells to date are complete."
Wells Fargo has been the trustee for Chattanooga's Fire and Police Pension Fund since 2005 and, according to Chattanooga attorney Gary Patrick, provided inaccurate and incomplete disclosures to the fund. Patrick filed a 7-page lawsuit against Wells Fargo this week asking the Hamilton County Chancery Court to order Wells Fargo to fully disclose and account for all revenues sources the bank received as trustee.
The Wall Street Journal Thursday said correspondence between the fund and Wells Fargo showed that Wells Fargo improperly retained fee rebates resulted from "a system set-up error."
Since 2010, the pension fund charges that Wells Fargo has improperly retained $47,000 belonging to the fund, which holds $215 million in assets for 1,600 participants.
As trustee, Wells Fargo received fee rebates from mutual-fund companies when the trustee directed investments in such accounts. The bank was supposed to return the rebates to the fund but apparently did not always do so.
Such actions had little impact on the overall financial solvency of the Fire & Police Pension Fund. Fund administrator Katrina Abbott declined Thursday to comment on additional details regarding a current investigation.
Patrick, who was hired to represent the pension fund after the Wells Fargo rebate problems were discovered, said the Fire and Police Pension Board is moving to constitute itself as trustee to replace Wells Fargo because of the fund's concerns about the way Wells Fargo handled the pension investments.
"What we believe happened is that Wells Fargo had side agreements with these mutual funds where they would get back a certain percentage of money that Wells Fargo placed with them," Patrick said. "We want a full accounting to see if that is what happened."
Patrick said fund administrators in Chattanooga suspect the practice may have occurred with other funds handled by Wells Fargo's institutional retirement and trust division. The bank division handles $183 million in assets for record keeping, trustee and custody services for 401(k) accounts and pensions.
Contact Dave Flessner at email@example.com or at 757-6340.