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15 10 2019
Timothy D. Naegele

Wells Fargo Losses From Misconduct And Criminality Pass $9 Billion [UPDATED]

When I wrote my article above about Wells Fargo Bank, and its misconduct and criminality—which in turn cited my October 2019 law review article on the subject that can be downloaded and read here—its reported losses were estimated to be at least $7.154 billion.

See Timothy D. Naegele, Well Fargo—An American Banking Nightmare, 136 BANKING L. J. 493, 529 (October 2019) (Naegele October 2019) ( [NOTE: To download The Banking Law Journal article, please click on the link to the left of this note]

However, in an article entitled “Wells Fargo earnings suffer on $1.6B legal charge,” Dan Ennis has written at the Banking Dive:

The nation’s fourth-largest bank is in transition. This marked the final earnings call with interim CEO C. Allen Parker at the helm. He’ll return to his previous role as general counsel when Bank of New York Mellon’s Charles Scharf becomes Wells Fargo’s chief executive Oct. 21.

“Everybody’s waiting for Charlie to come in,” Kyle Sanders, an analyst at Edward Jones, told Bloomberg.

The $1.6 billion legal charge “indicates that things are still dragging on in terms of sales practices,” Sanders said. But the earnings call had showcased some positives. A $1.1 billion sale of the bank’s institutional retirement and trust business boosted earnings by 20 cents a share. And Wells Fargo generated $608 million from new mortgages, a 26% jump from the previous quarter.

“Our continued efforts to transform Wells Fargo and our unwavering commitment to serve our customers resulted during the third quarter in higher branch customer experience survey scores, growth in primary consumer checking customers, and increased loan and deposit balances,” Parker said during Tuesday’s earnings call. “We have more work ahead, but I’m confident that our focused efforts and the fundamental strengths of Wells Fargo will continue to enable us to achieve success.”

The repercussions of legal and regulatory issues could continue to keep costs up. The Federal Reserve capped Wells Fargo’s asset growth under $1.95 trillion last year, according to CNBC. The cap will stay in place through the end of 2019.

See (emphasis added); see also (“Costs weigh on Wells Fargo as new CEO prepares to take reins“) and (“Wells Fargo to pay USAA $200 million in patent infringement case”) and (“CFTC Orders Wells Fargo to Pay Over $14 Million for Violating Swap Dealer Business Conduct Standards”); but see (“JPMorgan Chase jumps to record revenue on consumer banking gains“)

Thus, Wells’ reported losses exceed $9 billion, which is staggering and only a small window into the misconduct and criminality that has occurred at Wells. Yet, no one has gone to prison so far.

With all due respect to Dan Ennis, Wells may not be “in transition” at all. There are reasons to believe the culture that was unleashed by Wells’ former CEO Richard Kovacevich still permeates the bank.

And as I have stated before, Wells was permitted to become, and did in fact become, an unmitigated disaster—and a rogue and lawless financial institution, the largest in the United States if not the world.

Lastly, the idea that one of Scharf’s first decisions as beleaguered Wells’ new CEO has been to hire Democratic Party “hack” Bill Daley to fix the bank’s image seems ludicrous on its face—and not a good omen for Scharf’s longevity at Wells. It may be tantamount to rearranging the deck chairs on the Titanic.

See (“Wells Fargo CEO Scharf taps Daley to help fix bank’s image“); see also (“William M. Daley“)


21 11 2019
Timothy D. Naegele

Wells Fargo On Trial: More [UPDATED]

Just when we thought that things could not get any worse at Wells Fargo, Kevin Wack—a California-based reporter for the American Banker who covers the U.S. consumer finance industry—has written:

Kathleen Fitzgerald was sitting at her desk inside Wells Fargo’s branch in Red Bank, N.J., when a co-worker asked her to step into another room to take a phone call.

It was the Monday before Thanksgiving in 2016. Less than six weeks earlier, the bank’s CEO, John Stumpf, had resigned amid a rapidly unfolding scandal involving millions of suspicious customer accounts.

When Fitzgerald picked up the phone, she learned that she was the target of an internal probe. A San Antonio-based investigator wanted to know if Fitzgerald had ever used her own personal email address for the purpose of enrolling a customer in online banking.

Fitzgerald denied that she had done so, but the investigator had proof to the contrary — 16 instances in which her Yahoo email address was listed on a customer account. There were various mitigating facts and circumstances, but the call seems to have ended without any discussion of them.

For instance, the investigator apparently did not ask Fitzgerald if anyone else at Wells Fargo had instructed her to use her personal email address in order to boost online banking enrollment numbers. Fitzgerald later said that her former boss had taught and pressured her to use a variety of underhanded sales tactics, and that her complaints about unethical practices had been ignored.

“I was in complete and total shock that this was even happening to me,” Fitzgerald said during a 2018 deposition, as she recalled her phone call with the bank’s investigator. “My mind was all over the place.”


Bad practices
These are among the tactics Wells Fargo employees allegedly used to meet sales quotas

Gave personal email addresses to boost enrollment numbers

Moved money between accounts, sometimes without permission

Shifted accounts opened late one month to next month

Counted accounts as opened before having required signature

Source: Court filings


Four days later, Fitzgerald learned that she was being fired. She turned in her keys and was escorted out of the building. Thirty-three years old and without a college degree, Fitzgerald was facing the end of a once-promising career in banking. “I cried my eyes out,” she recalled in her deposition.

Next February, a trial in Fitzgerald’s lawsuit against Wells Fargo is scheduled to begin in Toms River, N.J. Fitzgerald alleges that she was fired in violation of a New Jersey law that offers protection to employees who object to fraudulent conduct. Wells has denied any wrongdoing.

The broad outlines of the nationwide sales scandal at Wells Fargo are well known. Low-level employees, under heavy pressure to meet sales quotas, misbehaved on a massive scale. But less well understood is exactly how this pressure was transmitted through many layers of management at the bank, and how it felt to employees on the front lines.

Fitzgerald’s lawsuit offers a rare look into the granular details of what happened at the branch level. If her case goes to trial, it may also provide new insights about what Stumpf, former CEO Tim Sloan and former consumer banking head Carrie Tolstedt knew about the widespread misconduct.

John Tatulli, a New Jersey lawyer who represents Fitzgerald, said that he plans to subpoena the three former high-ranking Wells Fargo executives.

“I want to bring them into a courtroom, under oath, and cross-examine them,” Tatulli said. “They were able to resign, quote unquote, whereas Kathleen was kicked out the door.”

Wells Fargo and Sloan declined to comment on the lawsuit. Lawyers for Stumpf and Tolstedt did not respond to requests for comment.

‘It all trickles down’
Fitzgerald had no prior experience in banking back in 2013 when she went to work as a teller at Wells Fargo’s branch in Monmouth Beach, N.J.

In a deposition, she described a complicated relationship with the branch manager who hired her. Loredana Nadasan initially became a mentor and a personal friend, but their relationship deteriorated after Fitzgerald was fired. While they were working together, Nadasan allegedly pressured Fitzgerald to cross ethical lines in an effort to meet aggressive sales quotas, according to Fitzgerald’s testimony.

Using an employee’s personal email address in order to enroll customers in online banking — which caused the activation link to be sent to the wrong person — was one example.

“I couldn’t see why or how that would be OK, but I have my direct supervisor telling me, my boss telling me that I have to do this because we need the solutions,” Fitzgerald said.

She claimed that Nadasan told her, “No, no, no, it’s OK. You can’t do it all the time. But yes, you do need to do it now.”

Another tactic that Fitzgerald said she complained about was “ghost funding” — temporarily moving money from a customer’s savings account to a newly opened checking account, sometimes without the customer’s knowledge, so that the account opening process would be classified as complete.

She also recalled objecting to a practice known as “sandbagging” — classifying accounts that were opened late in one month as having been opened in the following month, since the earlier month’s sales quota had already been met.

In yet another example of questionable conduct, Fitzgerald said that branch employees sometimes had to stay after work in order to sell credit cards over the phone, making calls from a room that did not have cameras.

Instead of providing their signature, consumers were asked to give their mother’s maiden name, which might provide evidence that they had provided their consent. Branch workers sought to obtain signatures later, she said.

Fitzgerald claimed there were a couple of occasions when Nadasan, worried about missing signatures, instructed her to go to someone’s house. “I said, ‘Absolutely not,’” Fitzgerald testified. “’I’m not going there after work, knocking on their door while the family is serving dinner, to ask them to sign this piece of paper. That is absolutely crazy, and I am not doing it.”

Fitzgerald has said that she never complained to either the bank’s human resources department or its compliance hotline because she feared retaliation.

“The reason that I never called H.R. is because H.R. does not stay confidential,” she said in her deposition. “I know this from personal experiences in my store and Loredana telling me that as well.”

Fitzgerald also indicated that her complaints to two assistant managers and Nadasan fell on deaf ears.

“I did not agree with any of it, I really didn’t, but she was my boss,” Fitzgerald testified. “She taught me, I learned it from her, and she learned it from her bosses, and it all trickles down.”

Fitzgerald’s testimony shed light on the pressure that managers at Wells Fargo felt from their superiors to meet their daily sales numbers. Since 2016, Wells Fargo has eliminated its sales goals and overhauled its system of incentive pay for retail banking employees.

“As the hours go by, and you get further on into the day, when Loredana starts to feel desperate for the numbers. She doesn’t want to call in on one of those phone calls, like the 11:00 phone call and the 5:30 phone call, and tell them that we are behind on our numbers,” Fitzgerald said in her deposition testimony.

“So she would start to freak out and really get on us. And that’s when she would say, ‘I don’t care what you have to do, do it.’”

Wells Fargo has said in court documents that the three employees who allegedly received Fitzgerald’s complaints were not involved in either its internal investigation of Fitzgerald or the bank’s decision to fire her. Nadasan was on maternity leave when Fitzgerald’s employment was terminated.

“There is nothing tying Fitzgerald’s complaints about Nadasan and the things Nadasan made her do to her termination,” Wells Fargo’s attorneys wrote in an August court filing.

Nadasan, who could be a witness at the upcoming trial, no longer works for the $1.9 trillion-asset bank. She was originally a defendant in the lawsuit, but Fitzgerald’s lawyer did not contest her motion to have the allegations against her dismissed, and New Jersey Superior Court Judge Mark Troncone granted that request last month. Through her lawyer, Nadasan did not respond to requests for comment.

‘They need to be exposed’
By the time the phony account scandal broke, Fitzgerald had gotten several promotions. In the fall of 2016, Wells agreed to sponsor her to obtain licenses to sell insurance products, mutual funds and other securities, according to her lawsuit.

During her deposition, Fitzgerald admitted that she lied in the phone interview with the internal investigator. When pressed on why she hadn’t told the investigator that she was following her boss’s instructions, she said: “Because we were always told if we went under any kind of investigation, you never admit to anything ever.”

The internal investigator, Stacy Haby, later wrote in a court document that the probe of Fitzgerald was triggered by an automated report from the bank’s Sales & Services Conduct Oversight Team. “I recommended termination because Fitzgerald had created false banking records and then lied to me about it,” she wrote.

Fitzgerald is not the first ex-employee fired in connection with Wells Fargo’s phony account scandal to sue. But Tatulli, her attorney, said that he is not aware of any such cases that have gone to trial.

Back in 2016, Wells said that it had already fired more than 5,000 employees for sales misconduct. “They are usually able to eliminate these cases long before they get to this point,” Tatulli said.

He noted that the judge is allowing Fitzgerald to sue for punitive damages, which means that jurors, if they rule in favor of the plaintiff, will be allowed to award a large monetary judgment in an effort to send a message to the scandal-plagued bank.

In the three years since Fitzgerald was fired, she has worked for lower wages as a waitress and an insurance saleswoman.

“I have a black mark against me. The banks won’t take me,” she said during her deposition. “This was supposed to be my career path.”

In an interview Tuesday, she expressed the desire to send a message that Wells Fargo’s conduct is unacceptable. “I have details of things the public has not been made aware of,” Fitzgerald said. “They need to be exposed.”

See (“Ghost funding and sandbagging: Wells Fargo’s sales tactics on trial“) (emphasis in original); see also (“Lawmaker presses Wells Fargo on checking account refunds“) and (“USAA won $200M from Wells Fargo in patent fight. Will others be on the hook?“) and (“Wells Fargo settles auto insurance suit for $432M“) and (“Wells Fargo HR Department Exactly The Flailing Mess You’d Imagine“)

Yet, no one has gone to prison. Why not?


21 02 2020
Timothy D. Naegele

US Government Fines Wells Fargo $3 Billion For Its Staggering Fake-Accounts Scandal [UPDATED]

This is the title of an article written by Matt Egan for CNN:

Wells Fargo was hit with a $3 billion fine Friday by federal authorities outraged by the millions of fake accounts created at the troubled bank over many years.

The settlement with the Justice Department and Securities and Exchange Commission, years in the making, resolves Wells Fargo’s criminal and civil liabilities for the fake-accounts scandal that erupted nearly four years ago.

The deal does not, however, remove the threat of prosecution against current and former Wells Fargo employees.

Prosecutors slammed Wells Fargo for the “staggering size, scope and duration” of the unlawful conduct uncovered at one of America’s largest and most powerful banks.

As part of the deal, Wells Fargo admitted that between 2002 and 2016, it falsified bank records, harmed the credit ratings of customers, unlawfully misused their personal information and wrongfully collected millions of dollars in fees and interest.

“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,” US Attorney Andrew Murray for the Western District of North Carolina said in a statement.

The settlement focused squarely on Wells Fargo’s fake-accounts scandal, not the mistreatment of workers, auto borrowers, homebuyers and other customers that the bank has been accused of in recent years.

Authorities said Friday that the criminal investigation into false bank records and identify theft at Wells Fargo is being resolved by what’s known as a deferred prosecution agreement. Under that agreement, authorities have agreed not to prosecute Wells Fargo for three years as long as it abides by certain conditions, including its continued cooperation with “further” government investigations.

In a statement, Wells Fargo CEO Charlie Scharf, who joined the company in September, said, “the conduct at the core of today’s settlements — and the past culture that gave rise to it — are reprehensible and wholly inconsistent with the values on which Wells Fargo was built. Our customers, shareholders and employees deserved more from the leadership of this company.”

Wells Fargo has also reached a civil settlement over its creation of false bank records with the SEC over its conduct. The $3 billion fine resolves all three investigations.

‘Remarkable’ fraudulent conduct

The SEC and Justice Department’s settlement still leaves open the possibility that current and former Wells Fargo employees could be prosecuted. And in the agreement Wells Fargo admits that senior executives were aware of the illegal activity long ago.

“The top managers of the community bank were aware of the unlawful and unethical gaming practices as early as 2002,” the settlement said.

Yet Wells Fargo executives repeatedly refused to acknowledge the shady behavior was being driven by the bank’s wildly unrealistic sales goals, which were at the heart of the company’s business model. Authorities said that senior executives at the community bank “minimized the problems” by shifting the blame to “individual misconduct instead of the sales model itself.”

“This settlement holds Wells Fargo accountable for tolerating fraudulent conduct that is remarkable both for its duration and scope, and for its blatant disregard of customers’ private information,” Michael Granston, deputy assistant attorney general at the Department of Justice’s civil division, said in the statement.

Not out of the penalty box yet

The agreement removes a major cloud that has been hovering above Wells Fargo for years and shows the emphasis by the bank’s new management to move past the scandals. Scharf, the well-respected former CEO of Visa (V) and Bank of New York Mellon (BK), was hired last year to get the tarnished bank back on track.

But Wells Fargo’s legal troubles are far from over.

The settlement does not include the Labor Department, which launched a probe in 2016 into allegations that Wells Fargo committed wage theft and retaliated against whistleblowers. Multiple former Wells Fargo workers told CNN Business in 2016 that they were fired after calling the bank’s ethics hotline.

“When bank workers started to raise alarms about Wells Fargo’s fake account scandal, managers retaliated against us,” said Killian Colin, a former Wells Fargo employee and a member of the Committee for Better Banks, in a statement. “To make matters worse, frontline employees like us were unfairly scapegoated for trying to meet intense sales pressures.

“Today’s settlement might bring some relief to consumers and workers,” he added, “but it does not relinquish Wells Fargo’s duty to change the workplace culture that fueled the disastrous scandal in the first place.”

Wells Fargo still faces an even bigger regulatory headache: the unprecedented sanctions imposed by the Federal Reserve in early 2018 that prevent the bank from growing its assets beyond $2 trillion. If that so-called asset cap is not removed soon, Wells Fargo may not be able to make the loans required to boost profits[.]

“That’s a much bigger hurdle. That will take time,” said Gerard Cassidy, a banking analyst at RBC Capital. He expects that the asset cap and other enforcement actions against Wells Fargo won’t be completely removed until 2022.

Wells Fargo’s stock has suffered

The Justice Department and SEC said that Friday’s settlement took into account other recent fines imposed against Wells Fargo, as well as the bank’s “extensive cooperation” and efforts to repair damage done to customers.

Last month, former boss John Stumpf agreed to a lifetime ban from the banking industry and a $17.5 million fine for his role in the scandals. Seven other former Wells Fargo executives were fined about $70 million for what regulators described as described as “the bank’s systemic sales practices misconduct.”

In February 2018, the Federal Reserve handed down unprecedented sanctions on Wells Fargo for “widespread consumer abuses,” including the creation of millions of fake accounts. That penalty, which is still in place and was one of the final acts of former Fed chief Janet Yellen, prevents Wells Fargo from growing its balance sheet beyond $2 trillion.

Later in 2018, the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency fined Wells Fargo $1 billion for forcing customers to pay for car insurance they didn’t need and mortgage fees they didn’t owe. In some cases, Wells Fargo borrowers even had their vehicles wrongfully repossessed.

Taken together, Wells Fargo’s series of scandals have seriously hurt its business. The bank’s reputation is tarnished and it has been forced to spend heavily on settlements, lawyers, and fixes to its risk management system.

Wells Fargo’s stock, once a favorite in the banking industry, has fallen badly out of favor. Since the scandals began in September 2016, Wells Fargo’s stock is down 5%, while over the same time period the S&P 500 has soared 55%. Banking rivals JPMorgan Chase (JPM) and Bank of America (BAC) have more than doubled in value.

In other words, Wells Fargo has been left in the dust.

See (emphasis in original); see also (“Wells Fargo Agrees To Pay $3 Billion To Resolve Criminal And Civil Investigations Into Sales Practices Involving The Opening Of Millions Of Accounts Without Customer Authorization“) and (Wells Fargo-Civil Settlement Agreement) and (Wells Fargo-Deferred Prosecution Agreement)

Grievously omitted and conspicuously absent and missing from mention are (1) Wells’ former CEO Richard Kovacevich, who set all of this criminality in motion; and (2) Wells’ principal regulators at the OCC, who were “asleep” while all of it was happening.

They need to pay the piper too, bigtime.

Liked by 1 person

11 03 2023
Timothy D. Naegele

It Never Ends With Wells . . .

See, e.g., (“Wells Fargo says ‘technical issue’ causing customers to report missing deposits”)


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