Regulators Finally Crack Down on Wells Fargo
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Regulators Finally Crack Down on Wells Fargo

John Stumpf, the Former CEO Who Ran ‘Most Lawless’ Financial Institution, Fined $17.5M and Barred from Banking

Philip Mattera

It took three years but a leading U.S. regulator finally got tough with probably the most lawless large U.S. financial institution.

The Office of the Comptroller of the Currency, an arm of the Treasury Department, recently took action against a former chief executive of Wells Fargo. The action was in connection with the scandal in which the bank pressured employees to create bogus accounts to extract millions in fees from unsuspecting customers.

Many observers were surprised. The OCC, not known for aggressive action, fined John Stumpf $17.5 million. That’s the largest penalty it has ever imposed on an individual. And, the regulator banned Stumpf for life from the banking industry.

The agency also penalized two other former senior officials at Wells and charged five others. Among them is Carrie Tolstedt, the former head of retail banking. The OCC is seeking a penalty of $25 million for Tolstedt, $7.5 million more than Stumpf.

For more than a decade, the bank pressured employees to engage in ‘serious misconduct’ and ‘fostered an atmosphere that perpetuated improper and illegal conduct.’

Former Wells Fargo CEO John Stumpf

The belated severity may relate to the fact that the OCC’s posture toward Wells is about to be investigated by Treasury. That inquiry likely will address the failure to pursue complaints of abusive practices at Wells long before the sham-account scandal erupted in 2016. The agency admitted this lapse in an unflattering report about its conduct released in 2017.

Hundred-Page Indictment

Along with announcement of charges against Tolstedt and the others, the OCC released a 100-page Notice. It reads like an indictment. For more than a decade the bank maintained a business model that pressured employees to engage in “serious misconduct,” it said. Wells imposed “intentionally unreasonable sales goals” and “fostered an atmosphere that perpetuated improper and illegal conduct.”

The pressure hurt customers and corrupted lower-level employees, the document shows. Described as “immense” in the document, the corrupt scheme turned employees into accomplices.

Bank Cover-Up

Also contained in the document are indications that Wells managers were seeking to hide wrongdoing. The bosses  pretended to monitor improper conduct by lower-level employees. The head of corporate investigations testified before the OCC that there was nearly a 100% chance an employee’s boss would know if she failed to meet sales goals. However, getting caught for issuing an unauthorized product or service was unlikely. Employees knew they had to play to stay.

Unfortunately, the document is part of a civil proceeding. It should really be part of a criminal case against Wells. The shocking misconduct outlined by the OCC belongs in an indictment brought under RICO, the Racketeer Influenced and Corrupt Organizations Act.

There are reports that the Justice Department is pursuing a criminal investigation of Wells. But it is hard to be confident that William P. Barr’s Department of Justice will do the right thing.

 

February 5, 2020