Wells Fargo Revokes $75M From Execs After Fake Account Scandal
What's the cost for overseeing a program where fraud was rampant? About $75 million and counting. That's the amount that Wells Fargo's board announced it would "claw back" from two executives this morning, sending them the bill for the bank's account fraud scandal. The bank agreed to pay $185 million to regulators in September, after it was accused of fraud that saw 2 million fake bank account and credit card lines opened in customers' name.
But the bank isn't just laying blame on the two executives alone. Today's massive report from the bank's board, based on months of internal investigation, says that the structure and culture of the bank made it prime territory for such fraud.
Unreasonable Goals, Excessive Sales Pressure
For years, Wells Fargo employees created millions of fake accounts in an effort to meet the bank's aggressive sales goals. That high-pressure culture was the main driver behind the fraud, according to the board's 113-page report:
The root cause of sales practice failures was the distortion of the Community Bank's sales culture and performance management system, which, when combined with aggressive sales management, created pressure on employees to sell unwanted or unneeded products to customers and, in some cases, to open unauthorized accounts.
Responsibility for that culture, and for the ensuing fraud, lay largely on the shoulders of John G. Stumpf, Wells Fargo's former chief executive, and Carrie L. Tolstedt, its former head of community banking, from whom it will be revoking $75 million -- $47 million from Tolstedt and $28 million from Stumpf.
In total, the bank has clawed back $180 million in executive compensation as a result of the scandal.
Tolstedt, the report says, overlooked repeated warning signs, such as the high rate of new, unfunded accounts. "She resisted and rejected the near-unanimous view of senior regional bank leaders that the sales goals were unreasonable and led to negative outcomes and improper behavior," according to the report.
Bank's Structure Blamed Too
It was not only the bank's aggressive sales goals that led to the scandal, the report concludes.
Wells Fargo's decentralized corporate structure gave too much autonomy to the Community Bank's senior leadership, who were unwilling to change the sales model or even recognize it as the root cause of the problem. Community Bank leadership resisted and impeded outside scrutiny or oversight and, when forced to report, minimized the scale and nature of the problem.
This decentralization made "corporate control functions" difficult and prevented the company from identifying significant risks before the problem had grown too large.
The report marks the conclusion of most of the bank's internal investigations, according to Stephen W. Sanger, the board's chairman and leader of its investigation. No further terminations or clawbacks are expected. But it doesn't mark the end of the scandal for Wells Fargo. The bank still faces criminal investigations from the Department of Justice and state attorneys general, as well as a host of civil lawsuits.
- Wells Fargo Created Millions of Fake Accounts, for Real Customers (FindLaw's In House)
- Wells Fargo Dumped By California, Sued by Law-Abiding Employees (FindLaw's In House)
- Starting Off an Internal Investigation Right (FindLaw's In House)