September 14, 2023
LONE WELLS FARGO EXECUTIVE CHARGED CRIMINALLY, CARRIE TOLSTEDT, TO BE SENTENCED TOMORROW FOR CRIMES IN PHONY ACCOUNTS SCANDAL
Highest-Level Conviction for Major Financial Institution Executive in Years
To: Interested Parties
From: Dennis Kelleher, President and CEO (Media Contact: Anton Becker, Dir. of Communications abecker@bettermarkets.org)
Date: September 14, 2023
Re: Sentencing of Former Wells Fargo Senior Executive for Role in Phony Accounts Scandal
At long last a senior bank executive may be going to jail. Carrie Tolstedt, former Wells Fargo senior executive who reported directly to the CEO, has pleaded guilty to the criminal charge of obstructing a bank examination. She played a leading role in covering up millions of fraudulent bank accounts and credit cards created for customers without their knowledge. This phony accounts scandal went on for more than 15 years and involved thousands of Wells Fargo employees in hundreds of branches around the country.
Tolstedt’s sentencing will be this Friday September 15, 2023. Under her plea agreement, she could face up to 16 months in prison. The government has recommended a prison term of one year. The probation report recommended she serve just three years of probabation. If she does serve time in prison, it appears that she will be the most senior bank executive to face jail time since the officers of Enron, which collapsed in 2001 and whose President, Jeff Skilling, was sentenced to 24 years in federal prison (though he was released early after only 12 years). No one else from Wells Fargo faces criminal charges, and no executives from any of the major U.S. financial firms faced criminal charges for conduct related to the 2008 crash (which was the worst financial crash since 1929 and caused the worst economy since the Great Depression of the 1930s). This huge failure to hold bankers accountable stands in stark contrast to the hundreds of high-profile bank executives who were criminally prosecuted for misconduct arising out of the savings and loan crisis of the 1980s.
Tolstedt served as the head of the Wells Fargo unit that was the epicenter of the illegal conduct, the “Community Bank” unit. When one of the bank’s regulators, the Office of the Comptroller of the Currency (OCC) first began investigating Wells Fargo for this fraudulent activity, Tolstedt intentionally misled the OCC by preparing an inaccurate memo for the regulator about the scope, scale, and nature of the bank’s misconduct. As the government put it in its sentencing filing, Tolstedt “attempted to hide from the OCC Wells Fargo’s failure to police the widespread misconduct that occurred under her watch,” and “she did so as a highly compensated executive at one of the world’s largest financial institutions.” The government got it right when it noted that “this is a serious offense” that was “intended to [and did] cover up the scope of one of the most significant banking scandals of the century.”
Just before the scandal broke into public view, Tolstedt was allowed to retire from Wells Fargo in 2016 and given a golden parachute deal valued at $125 million, which in hindsight looked a lot like a hush money payment. In 2017, Wells Fargo clawed back $67 million of that exit package. She also settled with the OCC for $17 million and the SEC for $4.9 million. It is notable that John Stumpf, former CEO of Wells Fargo during the scandal and Tolstedt’s boss, is not facing any criminal charges. Instead, he paid a $17.5 million fine and accepted a lifetime ban from the banking industry—which Tolstedt agreed to as well.
Because banks do not commit crimes, bankers do, the only way to actually punish and deter crime is to meaningfully and personally punish those bankers, especially officers and executives like Tolstedt. Clawing back all their compensation, barring them from the industry, and, when appropriate, sending them to prison simply has to be the expectation if not the norm for bankers breaking the law. That is the only way to actually deter corporate white-collar lawbreaking in the financial industry and end the crime spree on Wall Street.
However, while prosecuting Tolstedt is better than nothing, it is also as close to nothing as possible. She is just one person out of dozens if not hundreds of Wells Fargo executives, officers, board members, and others who engaged in, were aware of, or grossly deficient in connection with the widespread, multi-state, 15-years long, flagrant illegal conduct. It is also noteworthy that the one person prosecuted out of all those possible targets just happened to be the most high-ranking woman. Such a prosecution, while important and merited, is likely to be viewed as a one-off that will not deter anyone regardless of the sentence she receives.