Unless you’ve been hiding out somewhere, you may have heard about the recent banking scandal at Wells Fargo.
It seems that for the past decade at the bank — which is the U.S.’s third-largest financial institution, as well as being a favorite investment vehicle for billionaire Warren Buffett — employees were playing a game whereby they created as many as 2 million extra accounts.
They then signed existing customers up for these accounts, sometimes without their knowledge, so the bank could collect extra fees, and the employees could make their sales goals based on them.
After 10 years, this scandal, which had been brewing for some time while banking regulators essentially did nothing, finally was announced by the media to an enraged public.
As it turns out, the real scandal is not necessarily that customers by the thousands were taken for a ride, but that senior management aided and abetted what was going on, so their $12-per-hour workers could meet the company’s highly aggressive sales quotas.
Workers were pushed to open more than 10 new fee-generating accounts per day, often using fake emails, such as [email protected], so the account openers couldn’t be traced within the bank. Branch managers gave their workers pre-signed forms to fill out for new customers.
Customers of the bank were signed up for the extra accounts in a process known as “cross-selling,” which generated fees that were in turn paid from customers’ existing accounts.
Because many people simply pay all their bills electronically every month, few bothered to look further into which fees were for which accounts. Many of the newly created accounts had zero balances, so customers assumed there was nothing amiss if they looked at their account statements.
Workers were often required to give progress reports to management several times per day, according to former employees. Many workers ended up working unpaid overtime in order to make their numbers.
Workers who could not make the quotas were reprimanded, fired or forced to resign, whereas employees that took advantage of the fake accounts were promoted and got bonuses. Over the course of the last five years, more than 5,300 low-level employees were fired, while no action was taken against any management executives.
“Wells Fargo knew that their unreasonable quotas were driving these unethical behaviors that were used to fraudulently increase their stock price and benefit the CEO at the expense of the low-level employees,” read a legal statement from a former employee of the bank. “Although this policy was known to top executives… [workers] were blamed for harm to clients and retaliated against.”
After the news story broke, it was reported that Carrie Toldstedt, head of the division that oversaw the bank’s retail operations, announced her early retirement, receiving a golden parachute package worth some $125 million for her 27 years of “service” to the bank’s customers.
Many of those outraged customers, the public and now Congress have demanded justice, and Wells Fargo’s CEO John Stumpf was hauled before the Senate Committee on Banking in mid-September.
Stumpf was harshly grilled by a bipartisan group of senators including Republican Richard Shelby of Alabama and Democratic Elizabeth Warren of Massachusetts. “When …you have employees, up to 5,000 that they terminated for bringing forth fraudulent accounts, there’s something wrong with the culture and there’s something wrong with the bank,” said Shelby.
Warren angrily lashed into CEO Stumpf, saying he should “resign” and be “criminally investigated.” Although Stumpf did not respond to Warren’s tirade, word has been going around financial circles that his tenure with the bank may be coming to an end.
Stumpf’s total pay including bonuses over his 35-year career with the bank adds up to some $160 million. Already, the board of Wells Fargo has announced it will “claw back” $41 million of Stumpf’s bonuses and other compensation.
A claw back for Toldstedt is also happening. She will reportedly have $19 million in stock grants “clawed back” and will be denied enhancements in her retirement pay.
The Senate has referred the fired employees’ cases to the Department of Labor, which may investigate Wells Fargo for violations of employment law. “Given the serious nature of the allegations, the recent actions of our federal partners and recent media reports, I have directed enforcement agencies within the department to conduct a top-to-bottom review,” stated Secretary of Labor Tom Perez.
In the meantime, two ex-employees of the bank, Brian Zaghi and Alexander Polonsky, are leading a $3 billion class-action lawsuit against the financial behemoth. They accuse the bank of unlawful business practices, wrongful termination and failure to pay overtime, penalties and wages.
“Employees with a conscience who tried to meet quotas without engaging in fraud were the biggest victims—losing wages, benefits and suffering anxiety, humiliation and embarrassment,” reads a statement from the suit. Their legal action is on top of another class-action lawsuit filed by the bank’s stockholders.
At the beginning of September, Wells Fargo was fined $185 million for its actions without admitting wrongdoing — standard practice for banking crimes under President Obama’s administration.
Wells Fargo CEO Stumpf says that he is “deeply sorry” for betraying customers’ and workers’ trust and that the financial institution’s actions were “unacceptable.”
“I accept full responsibility for all unethical sales practices in our retail banking business,” he said in a statement. “I am fully committed to doing everything possible to fix this issue, strengthen our culture, and take the necessary actions to restore our customers’ trust.”
As the press continues to report on this story, one person has been very much shying away from any media attempting to cover it — Warren Buffett. Reportedly, the billionaire doesn’t want to comment on the scandal until after Election Day as he’s simultaneously the bank’s largest shareholder and one of Democratic presidential nominee Hillary Clinton’s biggest donors.
Regards,
Ethan Warrick
Editor
Wealth Authority
