https://www.americanbanker.com/news/former-wells-fargo-execs-may-face-criminal-charges-in-coming-weeks
Multiple former high-level Wells Fargo executives are under criminal investigation in connection with the bank’s fake-account scandal and could be indicted as soon as this month.
Federal prosecutors have been eyeing potential charges against individuals who were once in the San Francisco bank’s upper management ranks, according to sources familiar with the situation. Until this point, the scandal’s repercussions have fallen most heavily on lower-level employees, thousands of whom were fired, though some high-level executives have also lost their jobs and had compensation clawed back.
In September 2016, Wells Fargo agreed to pay $185 million in fines to the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Los Angeles City Attorney’s office in connection with the more than two million customer accounts that had been flagged as potentially unauthorized.
The federal criminal investigation has been conducted by Department of Justice prosecutors in California and North Carolina, with assistance from both the OCC and the Securities and Exchange Commission, according to one source. The probe could yield some of the most high-profile criminal charges against U.S. bankers since the financial crisis, though sources noted that the situation remains fluid and is subject to change.
An OCC spokesman said Friday that the agency does not comment on supervisory matters pertaining to specific banks or the investigations and actions of other agencies. An SEC spokesperson also declined to comment. The Justice Department did not return emails seeking comment.
A Wells Fargo bank branch at night in New York.
A Wells Fargo bank branch at night in New York.
Bloomberg News
Individual defendants will likely argue that the sales tactics used at Wells Fargo were similar to those employed by other banks. They are also expected to contend that the alleged misconduct does not rise to the level of criminal behavior.
As charges against former Wells Fargo executives have been under consideration, the bank itself has been in talks to resolve matters under investigation by the Justice Department and the SEC.
Wells Fargo first disclosed in late 2016 that it was facing sales-conduct-related scrutiny from those two agencies. In February 2019, the scandal-plagued bank revealed in a securities filing that it had begun engaging in discussions about a potential resolution. It said in a November 2019 filing that the talks were continuing.
Wells Fargo spokesman Ancel Martinez declined to comment Friday.
The criminal investigation grew partly out of an internal probe by Wells Fargo in 2013, which focused on employee misconduct in Los Angeles and Orange County, Calif., one source said. This source added that the charges under consideration by prosecutors may include making false or misleading statements to investors and conspiracy to obstruct the examination of a financial institution.
A Wells Fargo spokesman told the Los Angeles Times in the fall of 2013 that about 30 branch employees in the LA Metro region had been fired — or less than half of one percent of the company’s workforce in the area.
After the phony-account scandal erupted in 2016, the bank told Congress that around 265 of the employees who were fired between 2011 and 2015 had worked in zip codes within the city of Los Angeles.
“In 2013, Wells Fargo conducted its first data analysis intended to identify bankers who were opening accounts in which money was initially deposited, but then removed and no further account activity occurred,” the bank said in a written response to questions from senators following a September 2016 hearing that featured testimony from then-CEO John Stumpf.
“This analysis was conducted out of concern that bankers might be trying to manipulate the sales-integrity metrics — particularly the rate of accounts funded within the first 30 days, by ‘simulating’ funding of the accounts through transfers of funds.”
A subsequent analysis by PricewaterhouseCoopers, which had been retained by Wells Fargo, found that the firm's retail banking unit in Los Angeles and Orange County had the highest volume of potential simulated funding accounts per employee of any region in the country, Wells Fargo’s board said in a 2017 report.
That report, which was prepared with the assistance of the law firm Shearman & Sterling, stated that the bank’s Internal Investigations team and its Sales and Service Conduct Oversight Team launched the probe in Southern California as a result of sales quality reports that identified unusual funding and phone number change activity.
In the 2017 report, members of Wells Fargo’s board placed significant blame for the scandal on Carrie Tolstedt, the bank’s head of community banking until her departure in July 2016.
Tolstedt, who was eventually forced to forfeit stock grants worth $67 million, was instrumental in aligning sales goals with performance reviews and incentive pay, according to the board’s report. She was portrayed in the report as a hard-charging, numbers-focused manager who ultimately misled Wells Fargo’s board about the severity of her unit’s ethics problems.
The 2017 report stated that Wells Fargo’s board learned for the first time from the bank’s settlements with the CFPB, OCC and the LA City Attorney’s office that 5,367 employees had been fired for sales-related violations between Jan. 1, 2011 and March 7, 2016.
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“Tolstedt never voluntarily escalated sales practice issues, and, when called upon specifically to do so, she and the Community Bank provided reports that were generalized, incomplete and viewed by many as misleading,” the board’s report stated.
Tolstedt declined to be interviewed for the board’s report on the advice of her counsel. In 2017, a lawyer for Tolstedt said that the report was one-sided, and that a full and fair examination of the facts would produce a different conclusion.
Rob Blackwell and Kate Berry contributed to this report.