10 ms·

There are widely-corroborated allegations that Wells Fargo's flagship retail division had their junior employees open millions of unauthorized accounts/financia

There are widely-corroborated allegations that Wells Fargo's flagship retail division had their junior employees open millions of unauthorized accounts/financial products. Thousands of employees that did not play along were either fired or both fired and permanently burned with the self-regulating body FINRA. Employees who refused to engage in fraud were fired "for cause" and all anyone searching for their publicly-available disciplinary record with FINRA saw that they were fired for "not following directions" or somesuch. Wells Fargo settled this issue with some regulatory bodies by either admitting or not contesting the charges and paying record fines. But they did not settle with all of their regulators. These crimes are heinous enough to warrant a RICO case against WF. Many C-suite people plainly knew and encouraged or stood silent and should go to jail. Due to the size of WF and the length of time it has gone on, this cancerous culture has spread, to some degree, to every other retail bank, but we can still eliminate individuals who are obviously morally corrupt using a very simple filter. The entire mid- and senior-level leadership of WF Retail for the affected time period from Branch Manager on up should be barred from ever working in banking again. WF only promoted people who actively and enthusiastically engaged in fraud and we should have little sympathy or compassion for people like that. The retail bank should have its banking license revoked, which would result in the entire holding company being pushed into bankruptcy and the non-retail divisions sold off in a (semi)orderly fashion, if only to make an example to the rest of the industry. Great care should be taken that this doesn't turn into a Lehman-level fiasco that imperils the entire economy, but the punishment should fit the crime, and, at the minimum, bondholders should lose money. That is really the only way we can save our modern capitalism from itself.

anigbrowl 10y ago
If you're eligible, I think you should run for office.
cbcoutinho 10y ago
I hear you, in terms of punishing the wrongdoers, but how do you punish someone that is overseeing everyone else's money without having adverse effects on the bank's unknowing customers. If WF goes under and takes their customers down as well, then we didn't really solve the problem. Put another way, you end up punishing the people who had nothing to do with the crimes rather than those that committed the crimes in the first place
- pg314 10y ago
  Putting WFC in bankruptcy like fludlight proposes does not necessarily make customers lose money. I do agree, though, that it doesn't solve the problem.
  - forgetsusername 10y ago
    >Putting WFC in bankruptcy like fludlight proposes does not necessarily make customers lose money It should. Otherwise the rest of us are paying for it. "Customers" are either lending to or borrowing from the bank. If it's the former, it's usually safe...but not 100%. If the bank fails to pay you back, that's your problem, is it not?
    - pg314 10y ago
      > It should. Otherwise the rest of us are paying for it. No, WFC is solvent, so nobody has to pay for anything. In a bankruptcy, customers, the people depositing money in the bank, are first in line, then bondholders (first senior, then junior) and finally stockholders. Fludlight was proposing forcing WFC into bankruptcy as a punishment. Stockholders would lose all their money and bondholders lose part; customers would get their deposits back, I imagine. > If the bank fails to pay you back, that's your problem, is it not? In a free market, yes. But fractional reserve banks in a free market are vulnerable to bank runs because they engage in maturity transformation (borrow short, lend long). That is an unstable situation: an unsubstantiated rumor can start a bank run which would lead to a collapse of the bank. To remedy that, the government usually guarantees deposits up to a certain amount (in the US, FDIC guarantees up to $250,000).
      - forgetsusername 10y ago
        And when the government guarantees the deposits, who pays? Us.
- yrro 10y ago
  Are retail deposits not covered by some kind of government backed scheme? Are commercial deposits not insured as a matter of course?
pg314 10y ago
I do not think the solution you propose 'is really the only way we can save our modern capitalism from itself'. The market cap of WFC is 275 billion dollar. Pushing it into bankruptcy where even bondholders lose money implies that stockholders would lose all their money (since they are in line behind bondholders). I do not think that would be fair to stockholders (among which are pension funds). Selling off divisions would almost certainly lead to more concentration in the banking sector and more job losses at the lower level. I do not think that would solve anything.
- grive 10y ago
  > I do not think that would be fair to stockholders (among which are pension funds). How is it not fair? Why should they bear no responsibility in the behavior of something they are funding? They should indeed lose money for being reckless in their investment. The alternative is to let the rest of society, that has no stake in the company, bear the cost of their toxic activity. How is it more fair than making stockholders pay?
  - pg314 10y ago
    The punishment should be proportional to the damage that has been done. The settlement they reached was for 190 million dollar. That affects stockholders directly. You can argue that that fine is too low. I can agree with that, but saying the company should be put into bankruptcy is saying that the fine should be 275 billion dollar. I do not see how you can justify that. I do not think destroying the complete company as a deterrent will help. That will not deter executives which will still be making money hand over fist. It will however deter investors in investing in companies in general. I think a better way to address this situation is by reimbursing affected customers (which has mostly happened AFAIKT), compensating wrongly fired employees, disciplining the responsible executive (by firing and clawing back their compensation, which has happened partly). Improved oversight (internal/external) and whistleblower procedures should also be instated.
    - a_c_s 10y ago
      $0.190 billion is a trivial amount for Wells Fargo: it amounts to 3.4% of their Q3 2016 profits. They made $5.6 Billion dollars last quarter on $22.3 Billion in revenue. [1] If an individual commits one count of Social Security fraud they would pay a fine of $10,000 or about 20% of the median household income. [2] (This is an arbitrarily picked form of financial fraud) If the bank had a proportional punishment they would pay 20% of their annual revenue for systemic fraud, which would be roughly $18 billion dollars. [1] https://www.wellsfargo.com/about/investor-relations/investment-profile/ https://www.wellsfargo.com/about/investor-relations/investme... [2] https://www.reference.com/government-politics/penalties-commit-fraud-b34237c885792cfe https://www.reference.com/government-politics/penalties-comm... edit: used quarterly instead of annual figure for calculation
azernik 10y ago
This article is about an entirely separate issue - the Federal Reserve does not have confidence in Wells Fargo's plans for closing down the company if things go south.
- stuckagain 10y ago
  That's another reason to shut it down.
- rhizome 10y ago
  So not only too big to fail, but too big to ever go out of business. That's quite a nice setup, almost like a guaranteed basic income.
  - azernik 10y ago
    That's the point of Dodd-Frank; if the bank gets into this situation, it is no longer allowed to pay out dividends to shareholders, and is limited in the investments it is allowed to make, with the aim of removing it from this situation.
- tedunangst 10y ago
  Doesn't matter. Every thread from now until the end of time will mention it. Just like Microsoft is a "convicted monopolist".
amsilprotag 10y ago
The Planet Money podcast investigative journalism was some of the most disheartening listening I've encountered all year. The two most glaring abuses, in my mind, were the blackmailing of employees to put their name on a banking industry do-not-hire list if they didn't make sales quotas that proved nearly impossible without the opening of fake accounts. Essentially, WF used the industry fraud blacklist as a punishment for employees unwilling to commit fraud. The second malevolent practice was using the company ethics line as a kind of honeypot to discredit and fire potential employees who wanted to report opening fake accounts on clients' behalf. http://www.npr.org/sections/money/2016/10/07/497084491/episode-728-the-wells-fargo-hustle http://www.npr.org/sections/money/2016/10/07/497084491/episo... http://www.npr.org/sections/money/2016/10/28/499805238/episode-732-bad-form-wells-fargo http://www.npr.org/sections/money/2016/10/28/499805238/episo...
- baldfat 10y ago
  I want to leave WF solely on this issue but it is so hard to actually change banks. They have better to me then other national banks as a customer but I find this to be beyond repair.
  - anarcticpuffin 10y ago
    In the UK they've actually fixed this. The whole process of switching is automated and requires very little work from you. The process is called the "Current Account Switch Guarantee" (Current Account is British for Checking Account). All of your electronic payments (in and out) are migrated automatically. And because the vast majority of payments in the UK are done using direct debit nowadays (rather than checks), there's very little extra work to do on your part. I'm a US citizen but spent a few years in the UK. I miss their banking system. Here's an example of the standard process: http://www.hsbc.co.uk/1/2/switching-to-hsbc http://www.hsbc.co.uk/1/2/switching-to-hsbc
  - skadamou 10y ago
    If you're thinking about switching banks you should strongly consider moving to a credit union. Do your research but many(all?) are member owned and offer many benefits when it comes to fees you might otherwise occur at big bank. I could not be happier with my current credit union
yrro 10y ago
It sickens me to the core that regulators are so toothless. It is beyond belief that They settled with WF. Thinking about it actually makes me angry. Same as with the robo-signing fraud that other banks perpetrated before the financial crisis.
Mvandenbergh 10y ago
>Many C-suite people plainly knew and encouraged or stood silent and should go to jail. I'm not actually sure about that. Why would they want to encourage this sort of behaviour when it never made the bank any money? Presumably, C-suite people are compensated based on the financial performance of the bank so they would be motivated to encourage subordinates to commit frauds that drove that performance. The fake account frauds didn't. The whole reason they were able to get away with it for so long despite the number of accounts is that most of these were no-fee accounts. The people whose identity was stolen to open them never saw a bill or a statement related to the account which is why they never noticed. However that also means that WF didn't actually benefit from the fraud. The retail level employees and their immediate supervisors were incentivised based on number of opened accounts, regardless of any revenue produced from them, which is why they did this in the first place.
- mavelikara 10y ago
  In your reckoning why were the whistleblowers persecuted, if the bank top brass did not gain from it? How, in your understanding, did the line managers orchestrate firing of employees who notified HR organizations specifically set up for reporting such grievances?
  - Mvandenbergh 10y ago
    There were obviously relatively senior (above branch level) people in on this scam, otherwise as you say, the jig would have been up as soon as a few people went to HR. I'm just not convinced that it's absolutely necessary for the most senior people to have known about it, especially since I can't imagine what they would have gotten out of it.
    - rhizome 10y ago
      Yet SarbOx is still the law.
- lost_my_pwd 10y ago
  > I'm not actually sure about that. Why would they want to encourage this sort of behaviour when it never made the bank any money? Huge bonuses based on performance metrics? WF executives were given 100s of millions in bonuses during this period of fraud.
Tinyyy 10y ago
How is this relevant to the article?
yummyfajitas 10y ago
This is a gross misrepresentation of what happened. Thousands of WF employees engaged in fraud that harmed Wells Fargo in order to make themselves appear more productive than they actually were and take money from WF. WF explicitly instructed employees not to do this. Matt Levine, as usual, has a very coherent summary of it: https://www.bloomberg.com/view/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts https://www.bloomberg.com/view/articles/2016-09-09/wells-far... https://www.bloomberg.com/view/articles/2016-09-19/tough-targets-and-short-term-projects https://www.bloomberg.com/view/articles/2016-09-19/tough-tar... RICO is used to target criminal organizations. There is no evidence whatsoever that the employees who were ripping off WF conspired with each other. You are literally blaming the victim here.
- scottshepard 10y ago
  I don't know how the author can draw this conclusion. He seems to say that employees engaging in shady practices is the inevitable conclusion of requiring a certain amount of accounts to be opened, and then blames the employees for doing it instead of those who wrote the policy. The article quotes: "Wells Fargo has strict quotas regulating the number of daily "solutions" that its bankers must reach; these "solutions" include the opening of all new banking and credit card accounts. Managers constantly hound, berate, demean and threaten employees to meet these unreachable quotas. Managers often tell employees to do whatever it takes to reach their quotas. Employees who do not reach their quotas are often required to work hours beyond their typical work schedule without being compensated for that extra work time, and/or are threatened with termination. "The quotas imposed by Wells Fargo on its employees are often not attainable because there simply are not enough customers who enter a branch on a daily basis for employees to meet their quotas through traditional means." This reads to me like damning culpability. Then he says, "But obviously no one in senior management wanted this." Well of course they don't, now that they've been caught! But it was a pretty good scheme at the time raking in millions of dollars.
  - yummyfajitas 10y ago
    The purpose of cross-selling is to make money, and that's why salespeople are incentivized to do it. The total amount of extra fees that were charged due to this is $2.4M (i.e. negligible to WF), or $1.14/fake account, or $450/dishonest employee. If an underperforming employee earned $450 in pay that they did not deserve, WF lost money on this. As matt levine explains: If your customers have a checking account, and a savings account, and a credit card and online banking, all in one place, then they'll probably use each of those products more...when they want a...mortgage...or investment advice -- they're more likely to turn to the bank where they keep the rest of their financial life...No one feels extra loyalty because they have a banking product that they don't use or know about. In website terms, this is roughly equivalent to the head of marketing buying fake traffic so he can tell his boss that he did a good job with SEO and ask for a raise.
jaredklewis 10y ago
Agree with most everything you said. Just commenting to say that there is no RICO case here and that any plaintiff would be laughed out of court for bringing one.
- fludlight 10y ago
  You don't have to win or even bring charges. The mere prospect of criminal charges destroyed Drexel.

anigbrowl 10y ago

If you're eligible, I think you should run for office.

cbcoutinho 10y ago

I hear you, in terms of punishing the wrongdoers, but how do you punish someone that is overseeing everyone else's money without having adverse effects on the bank's unknowing customers. If WF goes under and takes their customers down as well, then we didn't really solve the problem. Put another way, you end up punishing the people who had nothing to do with the crimes rather than those that committed the crimes in the first place

pg314 10y ago
Putting WFC in bankruptcy like fludlight proposes does not necessarily make customers lose money. I do agree, though, that it doesn't solve the problem.
- forgetsusername 10y ago
  >Putting WFC in bankruptcy like fludlight proposes does not necessarily make customers lose money It should. Otherwise the rest of us are paying for it. "Customers" are either lending to or borrowing from the bank. If it's the former, it's usually safe...but not 100%. If the bank fails to pay you back, that's your problem, is it not?
  - pg314 10y ago
    > It should. Otherwise the rest of us are paying for it. No, WFC is solvent, so nobody has to pay for anything. In a bankruptcy, customers, the people depositing money in the bank, are first in line, then bondholders (first senior, then junior) and finally stockholders. Fludlight was proposing forcing WFC into bankruptcy as a punishment. Stockholders would lose all their money and bondholders lose part; customers would get their deposits back, I imagine. > If the bank fails to pay you back, that's your problem, is it not? In a free market, yes. But fractional reserve banks in a free market are vulnerable to bank runs because they engage in maturity transformation (borrow short, lend long). That is an unstable situation: an unsubstantiated rumor can start a bank run which would lead to a collapse of the bank. To remedy that, the government usually guarantees deposits up to a certain amount (in the US, FDIC guarantees up to $250,000).
    - forgetsusername 10y ago
      And when the government guarantees the deposits, who pays? Us.
yrro 10y ago
Are retail deposits not covered by some kind of government backed scheme? Are commercial deposits not insured as a matter of course?

pg314 10y ago

I do not think the solution you propose 'is really the only way we can save our modern capitalism from itself'. The market cap of WFC is 275 billion dollar. Pushing it into bankruptcy where even bondholders lose money implies that stockholders would lose all their money (since they are in line behind bondholders). I do not think that would be fair to stockholders (among which are pension funds). Selling off divisions would almost certainly lead to more concentration in the banking sector and more job losses at the lower level. I do not think that would solve anything.

grive 10y ago
> I do not think that would be fair to stockholders (among which are pension funds). How is it not fair? Why should they bear no responsibility in the behavior of something they are funding? They should indeed lose money for being reckless in their investment. The alternative is to let the rest of society, that has no stake in the company, bear the cost of their toxic activity. How is it more fair than making stockholders pay?
- pg314 10y ago
  The punishment should be proportional to the damage that has been done. The settlement they reached was for 190 million dollar. That affects stockholders directly. You can argue that that fine is too low. I can agree with that, but saying the company should be put into bankruptcy is saying that the fine should be 275 billion dollar. I do not see how you can justify that. I do not think destroying the complete company as a deterrent will help. That will not deter executives which will still be making money hand over fist. It will however deter investors in investing in companies in general. I think a better way to address this situation is by reimbursing affected customers (which has mostly happened AFAIKT), compensating wrongly fired employees, disciplining the responsible executive (by firing and clawing back their compensation, which has happened partly). Improved oversight (internal/external) and whistleblower procedures should also be instated.
  - a_c_s 10y ago
    $0.190 billion is a trivial amount for Wells Fargo: it amounts to 3.4% of their Q3 2016 profits. They made $5.6 Billion dollars last quarter on $22.3 Billion in revenue. [1] If an individual commits one count of Social Security fraud they would pay a fine of $10,000 or about 20% of the median household income. [2] (This is an arbitrarily picked form of financial fraud) If the bank had a proportional punishment they would pay 20% of their annual revenue for systemic fraud, which would be roughly $18 billion dollars. [1] https://www.wellsfargo.com/about/investor-relations/investment-profile/ https://www.wellsfargo.com/about/investor-relations/investme... [2] https://www.reference.com/government-politics/penalties-commit-fraud-b34237c885792cfe https://www.reference.com/government-politics/penalties-comm... edit: used quarterly instead of annual figure for calculation

azernik 10y ago

This article is about an entirely separate issue - the Federal Reserve does not have confidence in Wells Fargo's plans for closing down the company if things go south.

stuckagain 10y ago
That's another reason to shut it down.
rhizome 10y ago
So not only too big to fail, but too big to ever go out of business. That's quite a nice setup, almost like a guaranteed basic income.
- azernik 10y ago
  That's the point of Dodd-Frank; if the bank gets into this situation, it is no longer allowed to pay out dividends to shareholders, and is limited in the investments it is allowed to make, with the aim of removing it from this situation.
tedunangst 10y ago
Doesn't matter. Every thread from now until the end of time will mention it. Just like Microsoft is a "convicted monopolist".

amsilprotag 10y ago

The Planet Money podcast investigative journalism was some of the most disheartening listening I've encountered all year. The two most glaring abuses, in my mind, were the blackmailing of employees to put their name on a banking industry do-not-hire list if they didn't make sales quotas that proved nearly impossible without the opening of fake accounts. Essentially, WF used the industry fraud blacklist as a punishment for employees unwilling to commit fraud. The second malevolent practice was using the company ethics line as a kind of honeypot to discredit and fire potential employees who wanted to report opening fake accounts on clients' behalf. http://www.npr.org/sections/money/2016/10/07/497084491/episode-728-the-wells-fargo-hustle http://www.npr.org/sections/money/2016/10/07/497084491/episo... http://www.npr.org/sections/money/2016/10/28/499805238/episode-732-bad-form-wells-fargo http://www.npr.org/sections/money/2016/10/28/499805238/episo...

baldfat 10y ago
I want to leave WF solely on this issue but it is so hard to actually change banks. They have better to me then other national banks as a customer but I find this to be beyond repair.
- anarcticpuffin 10y ago
  In the UK they've actually fixed this. The whole process of switching is automated and requires very little work from you. The process is called the "Current Account Switch Guarantee" (Current Account is British for Checking Account). All of your electronic payments (in and out) are migrated automatically. And because the vast majority of payments in the UK are done using direct debit nowadays (rather than checks), there's very little extra work to do on your part. I'm a US citizen but spent a few years in the UK. I miss their banking system. Here's an example of the standard process: http://www.hsbc.co.uk/1/2/switching-to-hsbc http://www.hsbc.co.uk/1/2/switching-to-hsbc
- skadamou 10y ago
  If you're thinking about switching banks you should strongly consider moving to a credit union. Do your research but many(all?) are member owned and offer many benefits when it comes to fees you might otherwise occur at big bank. I could not be happier with my current credit union

yrro 10y ago

It sickens me to the core that regulators are so toothless. It is beyond belief that They settled with WF. Thinking about it actually makes me angry. Same as with the robo-signing fraud that other banks perpetrated before the financial crisis.

Mvandenbergh 10y ago

>Many C-suite people plainly knew and encouraged or stood silent and should go to jail. I'm not actually sure about that. Why would they want to encourage this sort of behaviour when it never made the bank any money? Presumably, C-suite people are compensated based on the financial performance of the bank so they would be motivated to encourage subordinates to commit frauds that drove that performance. The fake account frauds didn't. The whole reason they were able to get away with it for so long despite the number of accounts is that most of these were no-fee accounts. The people whose identity was stolen to open them never saw a bill or a statement related to the account which is why they never noticed. However that also means that WF didn't actually benefit from the fraud. The retail level employees and their immediate supervisors were incentivised based on number of opened accounts, regardless of any revenue produced from them, which is why they did this in the first place.

mavelikara 10y ago
In your reckoning why were the whistleblowers persecuted, if the bank top brass did not gain from it? How, in your understanding, did the line managers orchestrate firing of employees who notified HR organizations specifically set up for reporting such grievances?
- Mvandenbergh 10y ago
  There were obviously relatively senior (above branch level) people in on this scam, otherwise as you say, the jig would have been up as soon as a few people went to HR. I'm just not convinced that it's absolutely necessary for the most senior people to have known about it, especially since I can't imagine what they would have gotten out of it.
  - rhizome 10y ago
    Yet SarbOx is still the law.
lost_my_pwd 10y ago
> I'm not actually sure about that. Why would they want to encourage this sort of behaviour when it never made the bank any money? Huge bonuses based on performance metrics? WF executives were given 100s of millions in bonuses during this period of fraud.

Tinyyy 10y ago

How is this relevant to the article?

yummyfajitas 10y ago

This is a gross misrepresentation of what happened. Thousands of WF employees engaged in fraud that harmed Wells Fargo in order to make themselves appear more productive than they actually were and take money from WF. WF explicitly instructed employees not to do this. Matt Levine, as usual, has a very coherent summary of it: https://www.bloomberg.com/view/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts https://www.bloomberg.com/view/articles/2016-09-09/wells-far... https://www.bloomberg.com/view/articles/2016-09-19/tough-targets-and-short-term-projects https://www.bloomberg.com/view/articles/2016-09-19/tough-tar... RICO is used to target criminal organizations. There is no evidence whatsoever that the employees who were ripping off WF conspired with each other. You are literally blaming the victim here.

scottshepard 10y ago
I don't know how the author can draw this conclusion. He seems to say that employees engaging in shady practices is the inevitable conclusion of requiring a certain amount of accounts to be opened, and then blames the employees for doing it instead of those who wrote the policy. The article quotes: "Wells Fargo has strict quotas regulating the number of daily "solutions" that its bankers must reach; these "solutions" include the opening of all new banking and credit card accounts. Managers constantly hound, berate, demean and threaten employees to meet these unreachable quotas. Managers often tell employees to do whatever it takes to reach their quotas. Employees who do not reach their quotas are often required to work hours beyond their typical work schedule without being compensated for that extra work time, and/or are threatened with termination. "The quotas imposed by Wells Fargo on its employees are often not attainable because there simply are not enough customers who enter a branch on a daily basis for employees to meet their quotas through traditional means." This reads to me like damning culpability. Then he says, "But obviously no one in senior management wanted this." Well of course they don't, now that they've been caught! But it was a pretty good scheme at the time raking in millions of dollars.
- yummyfajitas 10y ago
  The purpose of cross-selling is to make money, and that's why salespeople are incentivized to do it. The total amount of extra fees that were charged due to this is $2.4M (i.e. negligible to WF), or $1.14/fake account, or $450/dishonest employee. If an underperforming employee earned $450 in pay that they did not deserve, WF lost money on this. As matt levine explains: If your customers have a checking account, and a savings account, and a credit card and online banking, all in one place, then they'll probably use each of those products more...when they want a...mortgage...or investment advice -- they're more likely to turn to the bank where they keep the rest of their financial life...No one feels extra loyalty because they have a banking product that they don't use or know about. In website terms, this is roughly equivalent to the head of marketing buying fake traffic so he can tell his boss that he did a good job with SEO and ask for a raise.

jaredklewis 10y ago

Agree with most everything you said. Just commenting to say that there is no RICO case here and that any plaintiff would be laughed out of court for bringing one.

fludlight 10y ago
You don't have to win or even bring charges. The mere prospect of criminal charges destroyed Drexel.