California to investigate Prudential insurance policies sold through Wells Fargo

California Insurance Commissioner Dave Jones announced an investigation Monday into the sale of Prudential insurance policies by Wells Fargo & Co., marking the first time the bank’s unauthorized accounts scandal has widened to include another institution.

The decision came the same day the Newark, N.J., insurer suspended the sale of policies through Wells Fargo branches as it reviews a lawsuit filed last week by a trio of former Prudential employees. The plaintiffs say they were fired for refusing to cover up evidence that Wells Fargo workers sold Prudential policies to customers who did not want them.

Jones said his investigation will focus on both the insurance company and the bank, which starting in 2014 had an agreement to allow bank customers to a buy small Prudential life policies called MyTerm. New Jersey’s insurance department is also probing the companies.

Prudential said the former employees were fired over an ethics complaint unrelated to Wells Fargo, but in a statement the insurer said it was reviewing how its policies were sold through Wells Fargo and has asked for the bank’s cooperation.

“We stand behind the MyTerm product, but have decided to suspend sales of that product through Wells Fargo’s retail banking franchise until we have all the facts about whether it is being distributed properly and in the best interest of customers,” said Steve Pelletier, a Prudential executive vice president.

He said the insurer would cancel unwanted policies and reimburse any premiums paid for them. Prudential has sold about 15,000 MyTerm policies through the bank.

Wells Fargo spokesman Mark Folk said Monday that the bank is “deeply concerned” about the allegations in the Prudential employees’ suit and that the bank is working with the insurance company to investigate potential problems.

“We take any allegations of improper sales practices seriously,” Folk said in a statement.

The revelations of potential problems with insurance policies adds a wrinkle to the still-unfolding scandal that has enveloped Wells Fargo since September, but had been so far limited to the bank’s own products.

Wells Fargo reached a $185-million settlement with regulators in September after bank employees were found to have created as many as 2 million unauthorized savings, checking and other accounts in order to meet onerous sales goals.

The settlement prompted further investigations by the California Department of Justice for potential criminal identity theft, the federal Department of Labor, the Securities and Exchange Commission and other state and federal agencies.

Last month, the Office of the Comptroller of the Currency, one of the regulators that settled with the bank, announced new sanctions that will require Wells Fargo to get federal approval before hiring executives and making other business decisions.

The Prudential employees who filed last week’s lawsuit worked in the insurance firm’s corporate investigations division and allege that the insurer has tried to cover up problems with how policies were sold through Wells Fargo.

They say they tried to raise these problems with upper management and wanted to continue investigating but were told to put their investigation on hold because Prudential wanted to approach Wells Fargo first, “in order to maintain that business relationship,” according to the suit.

As the employees persisted, they say they were chided by higher-ups, placed on administrative leave and later terminated, according to the suit, which alleges violations of New Jersey’s whistle-blower statute.

The law protects workers from being punished for reporting dangerous or unethical business practices, and allows for back pay as well as punitive damages.

Scot Hoffman, a Prudential spokesman, denied there was any coverup and said the insurer has actively monitored MyTerm policies originated through the bank. He said Prudential last year surveyed Wells Fargo customers about the policies and responses to the survey “did not indicate fraudulent sales activity.”

“We shared this information with Wells Fargo and continued to monitor the MyTerm book of business,” he said. “Following the revelations about Wells Fargo’s sales practices this fall, we expanded our review into how the product was sold. That review is ongoing.”

The fired Prudential employees, though, say the survey raised red flags that were ignored by the insurer’s executives. According to the suit, Prudential had seen problems with policies originated through the bank as early as January 2015, just six months after Prudential started selling policies through the bank.

For instance, the suit alleged that when Prudential sent the survey via email, more than 700 emails bounced back, indicating the addresses were no good. Regulators earlier this year said Wells Fargo workers created fake email accounts to sign up customers for online banking without their knowledge.

A dozen customers who responded to the survey said they canceled their Prudential policies because they did not understand them or “even know about the policy premiums,” according to the suit.

Additional reviews, started in September in the wake of Wells Fargo’s settlement with regulators, found more problems, according to the lawsuit.

The Prudential employees say an internal investigation turned up several clients who had policies opened in their names, had one month of premiums pulled from their Wells Fargo accounts and then had the policies canceled. In many cases, policyholders were Spanish speakers who did not know anything about their Prudential policies, according to the suit.

An investigation started in late September by two of the plaintiffs found 99 instances in which a customer purchased a policy, canceled it or let it lapse, then bought another, the lawsuit said. They also contend to have found policies that listed wellsfargo.com email addresses for customers and home addresses on suspicious streets such as Wells Fargo Drive.

“Overall, there were a large number of similarities between how Wells Fargo Bank opened fraudulent bank accounts and how the MyTerm policies were being sold through Wells Fargo Bank,” according to the lawsuit.

What’s more, the employees allege that Prudential’s review found evidence that Wells Fargo workers were actively involved in selling and canceling insurance policies, potentially violating state laws that require insurance sellers to be licensed. Prudential’s MyTerm policies were designed to be purchased directly by customers, either through Wells Fargo’s website or through kiosks set up at Wells Fargo branches.

Folk, the Wells Fargo spokesman, said bankers were not allowed to sell MyTerm policies directly but were encouraged — and incentivized — to refer customers to the product. Like other product-based sales goals, incentives for referring customers to MyTerm were canceled starting in October, part of Wells Fargo’s push to restructure its sales-goal system following the fake-accounts scandal.

Prudential is not the only outside firm that sells products through Wells Fargo. The bank offers a variety of insurance products and annuities from other firms. It’s not clear whether those companies are reviewing how Wells Fargo workers sold their products.

Stephen Gawlik, a spokesman for Colorado annuity provider Great-West Financial, which has sold annuities through Wells Fargo since March, said he is not aware “of any issues with sales of our product.”

“But we do monitor the developments with them closely,” he said.

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Twitter: @jrkoren

UPDATES:

6:25 p.m.: This article was updated with additional details from the Prudential employees’ lawsuit, additional comments from Prudential and information about the California insurance commissioner’s investigation.

This article was originally published at 11:40 a.m.