(Bloomberg) -- Eight ex-Wells Fargo & Co. executives are facing a record $59 million in fines and the bank’s former chief executive officer received a ban from the industry as regulators took unprecedented steps in holding individuals to account for corporate scandals.
Former CEO John Stumpf agreed to a $17.5 million penalty and an industry ban that no major bank chief has faced, even in the aftermath of the financial crisis. Carrie Tolstedt, who led Wells Fargo’s community bank for a decade, faces a $25 million penalty that the Office of the Comptroller of the Currency said could climb higher.
The OCC laid out the penalties in more than 100 pages of documents Thursday that detailed “massive illegal activity and catastrophic reputational damage” from the bank’s retail banking scandals.
Wells Fargo tapped into public ire in 2016 with the revelation that bank employees opened millions of potentially fake accounts to meet sales goals, garnering criticism across the political spectrum, from Democratic Senator Elizabeth Warren to Republican President Donald Trump. The phony accounts were just the first in a slew of retail-banking issues that subsequently came to light, prompting regulatory fallout that’s in many cases unheard of for a major bank, including a growth cap from the Federal Reserve.
This is the first public step the OCC has taken against former executives related to Wells Fargo’s problems. Regulators received criticism from some corners over the fact that few individuals and no top executives were held accountable for crisis-era missteps like faulty mortgage-bond sales and unwarranted home foreclosures that cost the banks billions in fines and penalties.
Five Fighting
Stumpf was one of three to agree to consent orders and pay penalties, along with former chief administrative officer Hope Hardison and onetime risk chief Michael Loughlin.
Tolstedt and four other former executives -- general counsel Jim Strother, chief auditor David Julian, audit director Paul McLinko and community banking risk officer Claudia Russ Anderson -- will face a public hearing before an administrative law judge. The regulator said it could decide to increase the civil penalties based on the evidence presented.
During the OCC’s investigation, Stumpf and others admitted that the bank had systemic sales practice misconduct dating from the early 2000s. Tolstedt and Russ Anderson “asserted their Fifth Amendment right against self-incrimination and refused to answer all substantive questions about sales practice misconduct,” the regulator wrote in a notice of charges.
“We are reviewing today’s filings and will determine what, if any, further action by the company is appropriate with respect to any of the named individuals,” Charlie Scharf, who took over as Wells Fargo’s CEO in October, wrote to employees on Thursday, noting the bank won’t make any remaining compensation payments to the individuals during the review. “This was inexcusable. Our customers and you all deserved more from the leadership of this company.”
Attorneys for the former executives responded to the OCC’s claims:
- “Throughout her career, Ms. Tolstedt acted with the utmost integrity and concern for doing the right thing,” said Enu Mainigi, her lawyer at Williams & Connolly. “A full and fair examination of the facts will vindicate Carrie.”
- “At all times, Mr. Strother acted with the utmost integrity and transparency, including with the bank’s board, senior management, and its regulators,” Walt Brown, Strother’s attorney at Orrick Herrington & Sutcliffe, said in an emailed statement. “The OCC’s charges against Mr. Strother are false and unfounded, and he intends to vigorously defend against them.”
- “The OCC’s charges have no factual nor legal support and instead are based on hindsight and second-guessing that ignore what Mr. McLinko actually knew and did,” said Timothy Crudo at Coblentz Patch Duffy & Bass. “We look forward to a trial based on all of the facts, and we are confident that Mr. McLinko will be vindicated.”
Stumpf was CEO of Wells Fargo from 2007 until he retired in October 2016 amid the crisis. A report the next year conducted by law firm Shearman & Sterling on behalf of Wells Fargo’s board alleged that he reacted too slowly to warnings of sales abuses across the bank’s branch network. He forfeited $41 million in equity awards when he stepped down, and the board clawed back an additional $28 million following the Shearman & Sterling report.
Stumpf “failed to respond to numerous warning signs, including many team member complaints submitted directly to his office regarding pervasive sales pressure, fear of termination for not meeting unreasonable sales goals, and illegal and unethical sales activity across the Community Bank,” according to the OCC order he signed this week.
Regulatory actions against Wells Fargo have also included billions of dollars in fines and legal costs, and an order giving the OCC the right to remove some of the bank’s leaders. The Department of Justice and the Securities and Exchange Commission also have been investigating the lender’s issues.
The OCC and the Fed have both cited a wide-ranging pattern of abuses and lapses at Wells Fargo. The OCC drew scrutiny of its own as the firm’s main regulator throughout the scandals, prompting an internal review at the agency.
--With assistance from Jesse Hamilton, David Scheer, Daniel Taub and Gregory Mott.
To contact the reporter on this story:
Hannah Levitt in New York at [email protected]
To contact the editors responsible for this story:
Michael J. Moore at [email protected];
Jesse Westbrook at [email protected]
Dan Reichl
