Former Wells Fargo CEO John Stumpf agreed to a lifetime ban from the banking industry and a $17.5 million fine on Thursday, a result of the fake-accounts scandal that roiled Wells Fargo when he ran the bank.
Stumpf’s punishment – which he agreed to in a settlement with the Office of the Comptroller of the Currency, Wells Fargo’s federal regulator – punctuates a dramatic downfall for the once-venerated banker. Taking office as CEO in 2007, he successfully led the bank through the financial crisis and its 2008 acquisition of Charlotte-based Wachovia before resigning in the wake of the bank’s fake accounts scandal.
The OCC also announced charges against five former Wells Fargo executives and settlements with two others Thursday. In total, former executives are facing $59 million in fines from regulators.
Carrie Tolstedt, who used to run the consumer bank – where the alleged abuses occurred – was among those charged. Regulators are seeking an industry ban for Tolstedt, along with a $25 million fine.
Enu Mainigi, a lawyer for Tolstedt, said, “Throughout her career, Ms. Tolstedt acted with the utmost integrity and concern for doing the right thing. A full and fair examination of the facts will vindicate Carrie.”
In addition to Tolstedt, the other former executive who were charged were general counsel James Strother, chief auditor David Julian, executive audit director Paul McLinko and consumer bank risk officer Claudia Russ Anderson. Former chief administrative officer Hope Hardison and chief risk officer Michael Loughlin agreed to pay a total of $3.5 million in seperate settlements.
“The actions announced by the OCC today reinforce the agency’s expectations that management and employees of national banks and federal savings associations provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations,” Comptroller of the Currency Joseph Otting said in a statement.
Wells Fargo said it is freezing any remaining compensation payments to the former executives while it reviews the OCC’s findings.
“We must all dedicate ourselves to ensuring that such failings never again occur at Wells Fargo,” the bank’s new outsider CEO, Charlie Scharf, wrote in a letter to staff after the charges were announced.
Rather than attempting to move past the fake-accounts scandal as quick as possible, Scharf has expressed direct contrition for the bank’s actions and emphasized that recovering lost trust and satisfying regulators will take substantial time.
Wells Fargo is based in San Francisco and has its largest employment base in Charlotte, where it has about 27,000 workers.
ABUSE AND THREATS
Regulators said that the root cause of the misconduct was the business model in the firm’s consumer bank, which set unreasonable sales goals on purpose, and then put unreasonable pressure on employees to reach those goals. That fostered an atmosphere that “perpetuated improper and illegal conduct,” the OCC said.
The practice was highly profitable for the bank’s consumer wing, known as the Community Bank, and Tolstedt, its then-leader, was praised and highly compensated for the unit’s success.
That success came at a cost: the pressure to meet the impossible goals led to the opening of millions of accounts in customers’ names without their knowledge, among other misconduct, regulators said.
“The Bank tolerated pervasive sales practices misconduct as an acceptable side effect of the Community Bank’s profitable sales model, and declined to implement effective controls to catch systemic misconduct,” the OCC said. “Instead, to avoid upsetting a financially profitable business model, senior executives, including Respondents, turned a blind eye to illegal and improper conduct across the entire Community Bank.”
Management of the consumer bank badgered and intimidated employees to meet the intentionally unattainable goals, the OCC said. Employees were subjected to “hazing-like” abuse, regulators found, and were threatened with firing or actually fired if they didn’t meet the goals.
MORE LEGAL ISSUES
After widespread public outcry, the sales goals were removed in 2016. Since the revelation of the sales practices, the bank has struggled to recover. Stumpf and his successor, Tim Sloan, both resigned.
In September 2016, the bank was fined $185 million for opening the sham accounts.
The Federal Reserve has capped the bank’s growth since February 2018. Even “Saturday Night Live” made fun of the scandal.
Scharf, an acolyte of JPMorgan Chase CEO Jamie Dimon, got the bank’s top job late last year with a mandate to fix the mess, get regulators off the bank’s back, and get the bank growing again.
The scandal makes that harder: it’s spent billions on legal costs, including a $1.5 billion charge last quarter that hurt the firm’s earnings.
The legal woes don’t appear to end with the OCC’s action Thursday.
Federal prosecutors, including those in North Carolina, have opened a criminal investigation into multiple former Wells Fargo executives, American Banker reported this month, and indictments could come as soon as by the end of January.