Prudential Financial Inc. announced Monday that it would halt distribution of some term life insurance policies through Wells Fargo's retail bank, following a lawsuit filed by Prudential employees alleging they were fired for blowing the whistle on sales practices surrounding the policies.
Prudential suspended sales of MyTerm, a term life insurance product it began distributing through Wells Fargo in 2014, pending the results of an internal review of sales conduct.
“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,” Steve Pelletier, executive vice president and chief operating officer of Prudential's U.S. businesses, said in a statement.
Wells Fargo spokesman Mark Folk said the firm is working with Prudential to investigate any unauthorized or inappropriate referrals that may have occurred.
“We take any allegations of improper sales practices seriously, and if improper conduct is found, we take action and make things right with customers,” Mr. Folk said.
Prudential's announcement follows a report in the New York Times that three former Prudential employees sued Prudential and a regulatory officer for “illegal retaliation” against them, related to whistleblowing activity around Wells Fargo's allegedly fraudulent sales of MyTerm policies.
The alleged fraud at Wells Fargo was motivated by the bank's cross-selling programs, according to the lawsuit, which have landed the banking giant in regulatory hot water, subjected it to a multitude of shareholder lawsuits, and generated a backlash from consumer groups as well as ire from both parties in Congress.
Regulators fined Wells Fargo $185 million in September for opening roughly 2.1 million unauthorized deposit and credit-card accounts for banking customers, in an effort by employees to meet sales quotas.
The Financial Industry Regulatory Authority Inc., the brokerage industry watchdog, said Friday it wants to speak with former bank employees who were terminated and ended up losing their securities registration. More than 5,000 bank employees were fired as a result of the cross-selling shake-up, including an unidentified number of registered securities brokers.
Plaintiffs in the recent lawsuit, Julie Han Broderick et al v. The Prudential Insurance Co. of America et al, which was filed last week in New Jersey state court, are suing for unspecified damages caused by wrongful termination under the New Jersey Conscientious Employee Protection Act.
The plaintiffs, who were supervisors in the investigative division of Prudential's legal department, claim their termination was “retaliatory conduct against them because of their refusal to participate in defendant Prudential's cover-up of illegal and fraudulent business practices it has engaged in — and continues to engage in — with Wells Fargo Bank.”
Retaliation by Prudential and Deborah Bello, chief regulatory officer, was “an attempt to silence” plaintiffs, with the cover-up motivated by the public disclosure in September of Wells' “other illegal business practices” and Prudential's desire not to “alienate” its business partner, the complaint says.
Wells Fargo isn't a defendant in the lawsuit.
Prudential conducted an inquiry into potential fraud around MyTerm policy sales in September, when news of Wells Fargo's banking scandal emerged.
The policies have low premium payments, don't require medical background checks, and were designed to be self-service policies accessed at Wells Fargo Bank kiosks or online because bank representatives aren't licensed to sell insurance, according to the lawsuit.
Plaintiffs consistently flagged potential fraud unearthed during the investigation — including “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” — but their concerns were rebuffed numerous times by upper management, the complaint says.
Red flags included high lapse rates among policyholders within the first 45 days of purchase (some policies of which were repurchased two additional times), as well as unusual e-mail and street addresses associated with the policies, sold primarily to Hispanics whose first language wasn't English, according to the suit.
At the time the lawsuit was filed, the three plaintiffs — Julie Han Broderick, Darron Smith and Thomas Schreck — had been placed on placed on indefinite, unpaid administrative leave, with the “threat of imminent termination hanging over their heads.”
Prudential spokesman Scot Hoffman confirmed the three employees were in fact terminated. However, he says the termination was unrelated to the firm's business with Wells Fargo.
“The three former employees were terminated in response to an ethics complaint filed against them by individuals who were in no way involved with the Wells Fargo review,” Mr. Hanson said.
The firm conducted a survey of customers last year about their experience with MyTerm, and the responses didn't indicate potential fraud, according to Mr. Hanson. Prudential expanded its review, which is ongoing, into how the product was sold following the revelations about Wells Fargo's sales practices, he added.
A third-party review of sales practices is currently under way at Wells Fargo's Community Bank, and will ultimately extend across the enterprise, according to the firm's spokesman.