PLENTY MORE VILLAINS AT WELLS FARGO
In its latest attempt to salvage the reputation of Wells Fargo, the bank’s board announced Monday that it would revoke $75 million in bonus awards from two former senior executives who it said were largely to blame for a staggering sales scandal at the bank.
Tough as that might seem, it is not enough to punish their misconduct, deter wrongdoing by others and restore trust in the bank — or in the rule of law when it comes to investigating and prosecuting bank executives.
At issue is the bank’s practice over roughly the past decade of aggressively pushing employees to sell customers additional fee-generating accounts. That was bad enough when gullible customers signed up for accounts they did not really need. Even worse, the practice resulted in millions of fraudulent bank accounts and credit cards being opened by employees who were pressured to meet unrealistic sales goals. In some cases, money was diverted from legitimate accounts to phony ones, some of which incurred fees. Potential harm to customers’ credit scores from sham credit cards is still unknown.
John Stumpf, the bank’s former chief executive, has now been told by the board that he will not receive $28 million in proceeds from a stock grant in 2013; Carrie Tolstedt, the former head of community banking, will not be allowed to exercise vested stock options valued at $47 million. Those sums are on top of the cancellation last year of millions of dollars in unvested stock awards for the two executives.
None of this can make either Stumpf or Tolstedt happy. (Tolstedt issued a statement through lawyers Monday strongly disagreeing with the board’s finding that she was to blame; Stumpf did not comment.) Truth is, they’re getting off easy. The clawbacks still leave them with vast accumulated wealth. Stumpf will keep most of the $286 million he made from 2011 to 2016, according to Equilar, a compensation consultant. The hit to Tolstedt is harder to quantify because, unlike Stumpf, she was fired, which presumably affects the estimated $125 million she was set to receive upon retirement. But in 2015 alone, she made $9 million in total pay.
By focusing on just two villains, the clawbacks obscure the full extent of the bank’s activities. More than 5,000 generally low-level Wells Fargo employees were fired during the scandal, which strongly suggests that there were numerous enablers in the bank’s chain of command beyond Stumpf, Tolstedt and four lower-level executives, who were fired in February. It also suggests that the board failed in its oversight duty for a long period of time.
In addition, for all its talk about restoring trust and its reputation, Wells Fargo moved quickly to slam the courthouse door in the face of consumers wronged in the scandal. When some of the customers tried to sue over the sham accounts, the bank blocked the cases on the ground that the mandatory arbitration clauses signed by the customers when they opened accounts at Wells Fargo also applied to fraudulent accounts opened in their names without their consent.
The court accepted that argument, but that it did so does not vindicate the bank. Rather, it shows Wells Fargo’s willingness to hide behind an unjust arbitration system even as it professes to take responsibility for its actions. To date, Wells Fargo has refunded $3.2 million in fees that were charged on sham accounts. Private lawsuits, if allowed, could go a long way to ensuring such redress is in line with the harm done.
Finally — and this is a lesson learned over and over after the financial crisis — prosecutors at the Justice Department and the Securities and Exchange Commission need to pursue individual wrongdoers, civilly or criminally, as the situation warrants. Unless and until clawbacks are combined with private litigation and public prosecutions, misconduct and negligence will endure.