Attorney: H. Adam Prussin
Pomerantz Monitor September/October 2016
Although this was a tiny fraud, by bank standards, it hit home harder than most. Unlike the typical bank horror story, this one did not involve machinations in the sales of complex securities by one financial behemoth to another. Instead, it targeted regular retail customers of the bank, who were victimized by nickel and dime chiseling by over 5,000 low-level Wells Fargo employees. Because victims were mostly everyday people, this story cut through the election year noise and reminded us how bad these people are.
Despite the massive wealth of many banks, retail bank employees are among the lowest paid workers on earth, many earning around $10 an hour. In this case, Wells Fargo reportedly made their lives even more miserable by imposing extremely aggressive sales targets on them if they wanted to keep their jobs or, possibly earn a little Christmas bonus. These sales were supposed to be generated by “cross-selling” additional accounts or services to existing Wells Fargo retail customers. While there is nothing wrong with a bank providing incentives to employees to boost sales, in this case these were really quotas, which were so high that employees usually could not meet them legitimately. So, according to the Consumer Finance Protection Bureau, some 5,300 or so Wells Fargo employees opened about 1.5 million unauthorized deposit accounts in the name of unsuspecting customers and made about 565,000 unauthorized credit card applications, generating about $2.6 million in fees and enabling themselves to keep their jobs.
Years ago, Wells Fargo got wind of this illicit activity, and it apparently made their employees attend “ethics training” courses where they were repeatedly told to stop their fraudulent behavior. The bank supposedly hired more and more “risk managers” to try to prevent it as well. But the crazy sales quotas remained in place. Not surprisingly, then, the misbehavior continued for over five years. Reportedly, many Wells Fargo employees felt that they had no choice but to do whatever it took to meet the bank’s impossible sales quotas, or else face termination.
As is typical in cases involving bad bank behavior, once the wrongdoing was publicly exposed, only the little people were held responsible. So far, no one has identified a single member of management who got the axe for failing to prevent or stop this conduct.
Some have suggested that the bank should “claw back” bonuses that were awarded based on phony sales reports. Perhaps they should start by looking at Carrie Tolstedt, the divisional senior vice president for community banking, who was in charge of Wells Fargo’s 6,000 branches where the infractions took place. In the last three years, she was paid a total of $27 million. Although she stepped down in July, she remains employed by the bank until the end of the year. When she leaves, she will probably be able to take with her nearly $125 million in stock and options.
In the end, the bank agreed in September to pay a fine of $185 million. When this agreement was announced, the bank’s stock dropped about 7.5%, cutting its market capitalization by $19 billion.
On September 20, 2016, Charles Stumpf, CEO of Wells Fargo, testified before the Senate Banking Committee, and repeated his claim that this fraud was the work of a handful of “bad apples.” That argument did not sit well. Senator Elizabeth Warren blasted him, saying that “you should give back the money that you took while this scam was going on and you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission. This just isn’t right. A cashier who steals a handful of $20s is held accountable. But Wall Street executives almost never hold themselves accountable.”