Wells Fargo: The Poster Child of Greed & Fraud

Wells Fargo has now become a never ending story of greed and fraud as the charges against them continue and even more charges come to light.  It now looks as if they have uncovered an additional 1.4 million fake bank and credit card accounts for a total of up to 3.5 million accounts from their previous number of approximately 2.1 million. 

Just this July, Wells Fargo admitted to forcing up to 570,000 borrowers into unneeded auto insurance. About 20,000 of those customers may have had their cars repossessed as a result of the unnecessary insurance costs.

And here’s another “mistake” – they’ve recently discovered that thousands of customers were enrolled in online bill pay without their authorization. The review found 528,000 potentially unauthorized online bill pay enrollments for which they’ve agreed to pay $910,000 in refunds to customers.

Jaret Seiberg, an analyst at Cowen Washington Research Group, comments, “Every new disclosure seems to expand the scope of the bank’s troubles, which creates the perception that the scandal is getting bigger rather than going away.”

Costly “mistakes.” Wells Fargo has agreed to a $142 million national class action settlement to cover fake accounts that go back to 2002 plus another $6.1 million to refund customers for unauthorized bank and credit card accounts.

The problem? Well, the bank has blamed unrealistic sales goals placed on employees for encouraging the unauthorized bill pay and bank account openings. “We apologize to everyone who was harmed by unacceptable sales practices that occurred in our retail bank,” Wells Fargo CEO Tim Sloan said in a recent statement.

Gretchen Morgenstern of the New York Times comments, “the mounting infractions at Wells Fargo are getting hard to track without a score card.” She asks if the bank misled the U.S. Congress during last fall’s hearings “when it characterized its widespread opening of unauthorized bank accounts as a one-off problem in an otherwise clean operation?” 

John G. Stumpf, Wells Fargo’s former chief executive, was asked specifically if the bank had uncovered other types of misconduct regarding other bank products, besides the then in-question credit card and account openings. He responded, “We believe that the activity at issue here was limited to certain team members within the Community Banking Division.”

However, before the hearings, the bank was well aware of other problematic activities, such as charging customers for auto insurance that was not needed.  This has led to 33 consumer groups asking the Senate Banking Committee and the House Financial Services Committee to call for new congressional hearings, as have 11 members of the Senate Banking Committee itself.

Senator Sherrod Brown of Ohio, the Senate Banking Committee’s ranking Democrat, is urging new hearings be held.  In an interview Thursday, he said: “I’m hopeful that we’ll have another hearing, and I plan to follow through on that. John Stumpf has a lot of explaining to do.”

Jeff Emerson, a spokesman for the House Financial Services Committee, provided a statement from Jeb Hensarling, the Texas Republican who leads it, “This latest revelation of customer abuse is further evidence of catastrophic mismanagement at the bank” … “As for the Financial Services Committee, our investigation is ongoing and we are deploying all necessary investigative powers to make sure people are held accountable.”

The violations and consistent misleading statements by Wells Fargo are problematic. How did a bank that once supposedly had a strong reputation as being there for customers get to this point? Their motto:

“Our product: SERVICE. Our value-added: FINANCIAL ADVICE. Our competitive advantage: OUR PEOPLE.”

REALLY? I’ve not seen evidence of this. As we’ve said over and over, it is not the company’s motto or posted ethics guidelines, or executives’ lip service that encourages honesty. Much of the financial crisis could have been prevented if the large banks had listened to their own employees and followed their own published ethics policies, instead of ignoring and then retaliating against those employees as Wells Fargo and others have.

We’ve learned that six years before the fake account scandals, two of Wells Fargo’s employees came forward regarding the bank’s sales practices. The process whistleblowers take involves lodging a complaint with OSHA (the Occupational Safety and Health Administration), which is the first stop for anyone who seeks whistleblower protection. OSHA is then supposed to investigate the complaints with the individual. In the Wells Fargo situation, they did not follow this process.

OSHA‘s mandate is to protect whistleblowers from employer retaliation even if the complaint filed turns out to be wrong. But in 2010, OSHA closed the cases Ms. Guitron and Ms. Klosek filed, based on a conversation with the bank’s lawyer, who was misidentified by OSHA in their final report as representing the whistleblowers.

“OSHA really let these whistleblowers down,” said Benjamin Edwards, an associate professor of law at the University of Nevada, who teaches whistleblower securities law. “If OSHA had done a diligent investigation, there’s a good chance that Wells Fargo would not have spiraled so far out of control.” 

“There’s multiple violations that deprived these two people of any opportunity for justice,” said Darrell Whitman, the former investigator on their cases in the Department of Labor’s Whistleblower Protection Program under OSHA.  He added, “OSHA’s withdrawal was improper and the case[s] should be reopened.” Mr. Whitman himself was fired from OSHA in 2015 for a litany of alleged offenses, including unauthorized release of government information. While at the agency, he says, he tried to inform then-Labor Secretary Tom Perez of his allegations of misconduct.

Mr. Whitman goes on to say that in his five years as an investigator, it was common practice to start an investigation only after a company had been informed of the substance of the complaint and delivered a “statement of position,” essentially a first form of defense for whistleblower complaints. Wells Fargo didn’t respond in Ms. Guitron and Ms. Klosek’s cases.

Ironically, Mr. Whitman has filed a lawsuit of his own with an independent federal agency, the Office of Special Counsel, against OSHA and his former manager there, Joshua Paul. The documents from the Wells Fargo whistleblowers, Ms. Guitron and Ms. Klosek, are part of that suit. In it, Mr.  Whitman accuses both OSHA and Mr. Paul of routine collusion with corporate defendants.

Mr. Edwards says, “Her [Guitron] experience illustrates how companies ignore internal whistleblowers at their peril”… “If Wells Fargo had taken these internal whistleblower complaints seriously, it would have saved [itself] from the catastrophic consequences it has experienced.”

Tim Sloan, Wells Fargo’s present CEO, tells employees the bank is on a “journey to restore trust.” To that end, it released the following statement about its current approach to whistleblowers: Wells Fargo does not tolerate retaliation against team members who report their concerns.

To date though not much Wells Fargo has said or done builds trust in the company. Wells Fargo, if you’re serious, be transparent, offer real apologies, hire back the people you retaliated against and offer just compensation. Establish a real culture of trust and service and be the first to offer a new model of behavior for the too big to fail banks!

Not that, given my history, I have any strong feelings about retaliation against whistleblowers!

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