Log In | Subscribe | | |

Wells Fargo to pony up USD3,000 million in penalties

BIScom Subsection: 
Author: 
Editorial Staff

Wells Fargo & Co and its subsidiary Wells Fargo Bank, N.A, have escaped prosecution, at least for the time being, by agreeing to hand over USD3,000 million to various agencies and departments of the US Government. It all started when the company decided it needed more account holders. Normal banks advertise or put young people on the streets with flyers. Wells Fargo had a different and shorter route - it would just create accounts for people, even if they hadn't asked for them. And that's not the full extent of what the bank is paying.

In a statement issued by the Department of Justice, the government's case was that there was "a years-long practice of pressuring employees to meet unrealistic sales goals which led thousands of employees to provide millions of accounts or products to customers under false pretences or without consent, often by creating false records or misusing customers’ identities."

For those concerned, "Wells Fargo admitted that it collected millions of dollars in fees and interest to which the company was not entitled, harmed the credit ratings of certain customers, and unlawfully misused customers’ sensitive personal information."

The Department of Justice is under no illusions how this came about. "This case illustrates a complete failure of leadership at multiple levels within the bank. Simply put, Wells Fargo traded its hard-earned reputation for short-term profits."

The case has involved multiple agencies and even multiple offices of the same agency. And when the news of the settlement broke, most of them wanted to be recognised so the media release is long and full of the kind of PR-speak that is always trotted out, like copy/paste responses. But there are some nuggets: "Our settlement with Wells Fargo, and the USD3.000 million monetary penalty imposed on the bank, go far beyond ‘the cost of doing business.’ They are appropriate given the staggering size, scope and duration of Wells Fargo’s illicit conduct, which spanned well over a decade,” said Andrew Murray, the United States Attorney for the Western District of North Carolina. " Then he went onto promote his office which is boring. But he dragged it back to finish "Today’s announcement should serve as a stark reminder that no institution is too big, too powerful or too well known to be held accountable and face enforcement action for its wrongdoings."

Beginning in 1998, Wells Fargo increased its focus on sales volume and reliance on annual sales growth. A core part of this sales model was the “cross-sell strategy” to sell existing customers additional financial products. It was “the foundation of our business model,” according to Wells Fargo. In its 2012 Vision and Values statement, Wells Fargo stated: “We start with what the customer needs – not with what we want to sell them.”

But, in contrast to Wells Fargo’s public statements and disclosures about needs-based selling, the Community Bank implemented a volume-based sales model in which employees were directed and pressured to sell large volumes of products to existing customers, often with little regard to actual customer need or expected use. The Community Bank’s onerous sales goals and accompanying management pressure led thousands of its employees to engage in unlawful conduct – including fraud, identity theft and the falsification of bank records – and unethical practices to sell products of no or little value to the customer.

Many of these practices were referred to within Wells Fargo as “gaming.” Gaming strategies varied widely, but included using existing customers’ identities – without their consent – to open [current] and savings, debit card, credit card, bill pay and global remittance accounts. From 2002 to 2016, gaming practices included forging customer signatures to open accounts without authorisation, creating PINs to activate unauthorised debit cards, moving money from millions of customer accounts to unauthorised accounts in a practice known internally as “simulated funding,” opening credit cards and bill pay products without authorisation, altering customers’ true contact information to prevent customers from learning of unauthorised accounts and prevent Wells Fargo employees from reaching customers to conduct customer satisfaction surveys, and encouraging customers to open accounts they neither wanted or needed.

-- FBI statement

The Deferred Prosecution Agreement and the Settlement Agreement work in parallel to provide both a punishment to the bank (and - indirectly) its shareholders and a structured recovery and maintenance plan for the bank's management. Relevant management have gone but it does not appear as if they will face personal penalties which is often, seemingly, the point of "global settlements" and Deferred Prosecution Agreements.

The conduct revealed in the quoted section is all the more worrying when one considers that, if it had been originated by customers it is likely to be considered suspicious.

But it goes further: most countries have an absolute prohibition on financial institutions opening bank accounts in false names and some make it a criminal offence - it's part of the counter-money laundering regime. It might be argued that Wells Fargo and its officers have got off lightly, while its shareholders are being hammered.

Some shareholders have already fought back. Wells Fargo has previously entered into settlements in class actions.

In Hefler, "The Action alleged that Wells Fargo & Company ("Wells Fargo") and certain officers and directors of Wells Fargo violated the federal securities laws. Plaintiffs allege that, during the Class Period (i.e., February 26, 2014 through September 20, 2016, inclusive), defendants made misrepresentations and omissions about Wells Fargo’s “cross-selling” business model, including failing to disclose that thousands of Wells Fargo employees were opening unauthorised deposit and credit card accounts without the knowledge or consent of Wells Fargo’s customers." That cost USD480 million.

Then there was the Jabbari case. In that case wronged customers settled for a total of USD142 million.

While that case was coming to an end, John Stumpf, by then the "former" Chief Executive Officer of Wells Fargo was banned from the US banking sector for life. He stumped up USD17.5 million to settle a case brought by regulators and appears to have avoided any criminal prosecution. Others have been ordered to pay penalties including a chief risk officer and a chief administrative officer, the head of retail banking operations and four more were subject to proceedings.

Of course, by avoiding criminal prosecutions, the Wells Fargo can assume that it's safe from prosecution for money laundering. But the conduct was, it appears, clearly criminal in nature. So here's the interesting thing: every state in which Wells Fargo operated has a prima facie case for laundering having taken place in their jurisdiction. And so do countries overseas. They might fail but at least there's a paper argument to be made. The real question is whether anyone has the courage to bring a test case.

The behaviour of senior managers is at least abusive and in some cases appears to be, prima facie, criminal including what looks suspiciously like blackmail.

"The root cause of the sales practices misconduct problem was the Community Bank’s business model, which imposed intentionally unreasonable sales goals and unreasonable pressure on its employees to meet those goals and fostered an atmosphere that perpetuated improper and illegal conduct. Community Bank management intimidated and badgered employees to meet unattainable sales goals year after year, including by monitoring employees daily or hourly and reporting their sales performance to their managers, subjecting employees to hazing-like abuse, and threatening to terminate and actually terminating employees for failure to meet the goals." The case brought by the Office of the Comptroller of the Currency (link below) is startling in it's simple explanation of the brutal regime under which employees operated.

Further reading:
https://www.justice.gov/usao-c...
https://www.justice.gov/usao-c...
https://www.occ.gov/static/enf...

---------------- Advertising ----------------

--------------------------------------

 


 

Amazon ads

 

When a loved-one dies, we don't know how to feel, we don't know how to react and we don't know how to behave. "Ten Things You Need To Know About Dealing With Death" is a quick and easy description of ten simple "Rules" that guide you through the grieving process, in the immediate aftermath of a death, in a practical and sometimes humorous way.

 

More information