Prominent investor Warren Buffett said Wells Fargo's incentive system was the San Francisco bank's biggest error, which led to an embarrassing scandal that led to the resignation of former CEO John Stumpf and sullied the bank's image as a poster child for good banks. The mistake they made but "one one that dwarfs all...but you have to be very careful what you incentivize. You can't incentivize bad behavior," Buffett said at Berkshire Hathaway Inc.'s annual shareholder meeting in Omaha, Neb. on Saturday. Last year, Wells Fargo paid $185 million to settle allegations, without admitting ore denying wrongdoing, related to "widespread illegal" sales-practice issues, where its employees created accounts without the knowledge of its customers--at times creating fake accounts--in order to meet sales goals. Wells Fargo, now run by CEO Tim Sloan, has lagged behind its banking peers following the scandal that has resulted in the clawback of pay from its employees. Buffett also said the bank didn't move swiftly enough when signs of the fake-account problem first surfaced: "It was bad enough having a bad system," he said. "But they didn't act." Wells Fargo is Buffett's largest investment. The bank's shares are trading flat year to date, compared with a gain over the same period of 2.5% in the exchange-traded Financial Select Sector SPDR ETF , which tracks the broad financial market. The S&P 500 index is up 7.2% so far in 2017, while the Dow Jones Industrial Average has gained 6.3% over the same period.
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