
How Elizabeth Warren Took Down the CEO of Wells Fargo, and Why It Matters - xenophon
http://www.asktrim.com/blog/how-elizabeth-warren-took-down-the-ceo-of-wells-fargo-and-why-it-matters/
======
tswartz
I appreciate that Warren didn't let Stumpf talk his way out of taking any
responsibility for the actions of his employees and made a clear argument as
to why he should be held accountable. Unfortunately, it seems the primary
reason he resigned was because the public outrage was loud enough. It seems
that until CEOs are personally held accountable via fines or prison (as Warren
suggests) we won't see a very big change in their actions. He benefited
personally from the policy he implemented, but ignored the negative
consequences. The bank is fined, but he is not and keeps his bonuses.

~~~
forgetsusername
Anyone who has worked in a company of any size knows it'd be down near
impossible to know the inner working at all levels of the organization. So,
yes, the guy is accountable and needs to lose his job. But the idea that he
should go to _prison_ for something like this is ludicrous.

~~~
rconti
Prison may be a bit harsh.

And in a vacuum, you're right. It would be somewhat unfair to drop the hammer,
out of nowhere, on some unsuspecting CEO who just did "business as usual".

But that's no excuse; it just means we need to create a culture where this
kind of thing becomes increasingly unacceptable, so that _in the future_
executives will know what's expecting of them, and what the consequences can
be.

The "unintended" consequences of unrealistic goal-setting should be patently
obvious to anyone who's made it that far in business, and if it isn't, we
should make it clear that it's something these people need to start thinking
about.

In the case of Wells Fargo, this went on for a LONG time, was well-known,
frequently reported on, and had a number of whistleblowers.

The CEO can't know what every last person in the organization is doing, but
they should be incented to make it their business to a culture in place that
doesn't permit this, nor the blacklisting of whistleblowers.

~~~
henrikschroder
> The CEO can't know what every last person in the organization is doing, but
> they should be incented to make it their business to a culture in place that
> doesn't permit this

Where I'm from, there's a group af crimes such that if an employee at a
company does them, the CEO will absolutely go to jail, even if they knew about
it or not. For example, if your company produces toxic sludge as a byproduct,
and someone at the company dumps it in nature instead of properly taking care
of it, it's jailtime.

Unsurprisingly, compliance with some environmental protection laws are A+ at
all companies. Personal liability works fantastically as a motivator for
companies.

~~~
jnbiche
> For example, if your company produces toxic sludge as a byproduct, and
> someone at the company dumps it in nature instead of properly taking care of
> it, it's jailtime.

That's a kind of criminal collective responsibility, which I find repugnant
whether it's a mother in Palestine being held criminally responsible for her
son suicide bomber, or it's a CEO being held criminally responsible for the
wrongdoings of some low-level employee that they did not direct and were even
unaware of.

Personal liability is arguably OK here, but criminal liability like you
describe ("goes to jail") is most certainly not, and I'm surprised that there
are so-called enlightened legal jurisdictions that do this.

~~~
anigbrowl
Strict liability is an old concept in law. I am not buying these claims of
innocence involving a low level employee whose activities were not directed by
the CEO; this fraud involved _thousands_ of employees responding directly to a
clear economic incentive that came down from the executive suite. You don't
get to bring about that sort of situation and then disavow any knowledge of
it. That's just an invitation to malfeasance. Look up the legal concept of
_Scienter_ \- someone who knows or who _should have known_ that fraud was
taking place shares in the liability. I'm pretty sure the CEO of of a massive
bank like Wells Fargo understands that sufficiently tempting/frightening
economic incentives are going to drive employee behavior, _just as they do
consumer behavior_.

~~~
jnbiche
I'm actually inclined to agree with you re: Wells Fargo. But in general, I
think the bar should be very high. If a single employee dumps toxic waste
despite clear regulations otherwise, and a history of company enforcement,
then I would very much oppose any type of criminal penalty against the CEO.

And just because something is an old concept in law doesn't mean it's right or
moral.

------
wheelerwj
Look I love Elizabeth Warren but this whole article is really over the top.

> leaders of financial institutions are painfully aware that there are
> consequences

They were fined lousy 280m and the CEO was allowed to resign a full 3 years
after it was first reported. Really, REEAAALLLY painful stuff there.

~~~
AstroJetson
Its becoming cases of the wheels of justice turn, they turn slowly but they
turn. The rate they are turning has become much faster (never --> 3 years is a
big speed improvement) and the people that are getting caught in those wheels
is a much higher level. 5 years ago clerks, now a CEO.

~~~
wheelerwj
Then maybe we should ditch the wheels and use Hammers of Justice instead?

The ceo PERSONALLY made more money during the scam than entire bank was fined.
really epic stuff here, I mean, Really, way to dish out the pain!

~~~
tedunangst
The bank was also fined many times more than it made from the scam.

~~~
wheelerwj
i mean, i guess if you dont factor in 100% stock price increase they didn't
make that much money.

------
Evolved
Let's not overlook the fact that not only did the whistleblowers' concerns not
get addressed[0], they were also subsequently fired for <bullshit reasons>
_trumped up charges_ , AND their U-5[1][2][3][4] was also marked as well,
which makes it much harder to get another job in banking as banking
organizations have access to this _universal employee report card_ as it is
colloquially referred to.

[0][http://fortune.com/2016/10/18/wells-fargos-former-ceo-may-
ha...](http://fortune.com/2016/10/18/wells-fargos-former-ceo-may-have-been-
warned-of-phony-account-fraud-as-early-as-2007/)

[1][http://www.wealthmanagement.com/practice-
management/u5-hazar...](http://www.wealthmanagement.com/practice-
management/u5-hazard)

[2][http://www.finra.org/industry/terminate-individuals-
registra...](http://www.finra.org/industry/terminate-individuals-registration)

[3][http://www.npr.org/2016/10/14/497991242/fired-wells-fargo-
em...](http://www.npr.org/2016/10/14/497991242/fired-wells-fargo-employees-
allege-attempts-to-blow-the-whistle)

[4][http://www.forbes.com/sites/billsinger/2011/12/15/wells-
farg...](http://www.forbes.com/sites/billsinger/2011/12/15/wells-fargo-hit-
with-punitive-damages-in-finra-u5-defamation-case/#12e8ab87af13)

------
prions
Can we remove:

-"Why x matters" -"What we know" -"Slammed" and -"Number x will shock you!"

from all news headlines?

~~~
anigbrowl
I wish. Newspapers seem to have decided that the best way to attract readers
is to imitate the magazines that live near the supermarket checkout.

~~~
willtachau
Can you blame them? It's ultimately driven by users. If we didn't click on
these article titles, the publishers wouldn't use these ridiculous formats.

------
MarkMc
In pushing for jail time for this particular CEO, Elizabeth Warren is barking
up the wrong tree. Stumpf made mistakes in setting incentives and monitoring
staff culture, but there is no evidence he committed fraud. The bank
overcharged customers $2 million dollars and paid a $185 million settlement.
That seems reasonable to me.

More worryingly, the bank also seems to have harassed and blacklisted
whistleblower employees. No doubt it will have to pay a hefty settlement and
class-action lawsuits, but again the CEO is guilty only failing to monitor
bank culture. There was nothing malicious or criminal in his actions.

The number of fake accounts created by the bank - _1.5 million!_ \- is
irrelevant. I run a business and can create a billion customer accounts in
seconds without harm to anyone else. What matters is how much damage the bank
did to others - in this case the bank has already paid a fine proportional to
that damage.

Instead of going after a hapless CEO and a company that has already paid a
huge settlement for a relatively small error, Elizabeth Warren should focus
her attention on banks which overinflated the value of their mortgages before
selling them on to other banks or Freddie Mac and Fannie Mae. In such cases
we're talking a fraud involving billions of dollars, that led to worldwide
financial recession, and where perhaps the CEO had direct knowledge of the
fraud.

[Disclosure: I own shares in Wells Fargo]

~~~
mylesm
Part (most?) of the damage isn't contained in the numbers you cited. Wells
Fargo used customer identities to apply for and open credit cards, which could
have affected their credit scores and thus potentially the interest rates they
paid on loans (that could be a lot for something like a mortgage). It's hard
to know what the dollar figure of this is, but it probably raises the damages
a little bit.

~~~
MarkMc
Yes you're right - the bank's actions had an effect on the credit scores of
many thousands of people. Still, the size of the settlement with regulators
seems to reflect that.

------
rememberlenny
In the same vein, Sheila Bair is an amazing human being. She was chair of the
FDIC during the TARP funding and bank bailouts. She wrote a captivating book
on the battle against the corruption of banks and the difficulties in policing
issues with government funding.

Book link: [https://www.amazon.com/Bull-Horns-Fighting-Street-
Itself/dp/...](https://www.amazon.com/Bull-Horns-Fighting-Street-
Itself/dp/1451672497)

------
zodiac
I watched Stumpf testify in front of the Senate Banking Committee, and while I
agree that (from what I saw) he should be held accountable, what I don't
understand is why the right venue for it is the Senate instead of the
Judiciary.

Warren clearly thinks that Stumpf wasn't just doing a bad job, but that what
he did and didn't do was criminal in some way (eg the talk of jail time,
comparisons to Enron in the article). The CFPB settlement also indicates that
there was wrongdoing, at least on the part of Wells Fargo the corporation.

Isn't the right thing to do to prosecute Stumpf in court? The testimony seemed
to me to have no purpose other than to put Stumpf "on trial", and it led to
damaged PR and his resignation, but it looked like a "trial" without due
process protections like knowing what exact charges he was facing. Another
missing protection I was particularly disturbed by was how often she would cut
him off and not allow him to defend himself (yes, his answers were clearly
evasive, but it still isn't fair to do that).

~~~
anigbrowl
It's fair in that the Senate _can 't_ impose any penalty on him other than a
public shaming. I agree that it would be better if the judiciary took on this
case. Unfortunately Congress holds the power of the purse and that effectively
means it can keep the DoJ on a much shorter leash than most people appreciate.
Also, sadly, the complexity of litigation means that if it goes to court Wells
Fargo could just keep the proceedings spinning out for years before it ever
gets to trial, by which point almost everyone will have forgotten what the
original issue was. Indeed, this is more or less what happens now.

~~~
hollerith
>It's fair in that the Senate can't impose any penalty on him other than a
public shaming.

They can compel him to answer questions, and those answer can then be used by
prosecutors.

------
vonklaus
This is good. Articles like this however always seem to recall the subprime
mortgage crisis, when "too big to fail" sheltered CEOs and banks from much
fallout.

I would like to express to Sen Warren, and others, that a more fragmented &
transparent financial system is important-- but much less than the broadband &
tech sector.

Google has 1.6B[0] users of a total of 3.8[1] internet users.

 _too big to fail_ is 42% of the world using "core" services from one
institution.

The data is hard to find and I am on mobile but the consolidation of global
broadband & wireless provideres attempted or closed between 2015-2016 was
nearly 1 Trillion. A rollup of unprecedented levels.

[0][http://m.wolframalpha.com/input/?i=+total+active+users+googl...](http://m.wolframalpha.com/input/?i=+total+active+users+google&x=0&y=0)
* While this is Alexa's visits total, subsets of Google's 10-k (which doesnt
break this out because they are facing heavy competition) adjust to uniques.
If someone finds better data, I will adjust, but this seems to be the accepted
active user base of google.

[1][http://m.wolframalpha.com/input/?i=total+internet+users&x=0&...](http://m.wolframalpha.com/input/?i=total+internet+users&x=0&y=0)

~~~
DINKDINK
The difference in your comparison though is the internet still works if Google
goes under. If a TBTF bank goes under [1] the financial system can
halt/implode. Which is the main argument to break up the banks to a level
where there isn't total-system fragility.

[1] due to their own reckless behavior / Capitalism on the upside, Socialism
on the downside.

~~~
vonklaus
The economy still works if banks go down, it just gets messy. How many
companies & people use gmail to communicate, google apps for biz, android,
search.

40% of the internet hitting Bing would potentially overwhelm it. Keep in mind
the subprime mortgage crisis was several banks. Add microsoft and google, the
world would panic.

Facebook sees 1/3 traffic of google. Just like a run on banks, people
desperate for info would prob level news sites maybe even FB.

Consider that outside of content/services we have providers. Verizon down.
At&t down. Overwhelm the other towers or broadband failure.

Leaving aside how disgusting it is that these are actively encouraged
monopolies and kill innovation & competition, it is dangerous.

1% of Germany lost internet TODAY. Deutsche telkom hit with ddos. 5 Banks in
Russia 2 weeks ago. Oct 21 we all remember what happened to dyn.

This isn't even hypothetical, literally getting worse daily.

~~~
DINKDINK
>The economy still works if banks go down, it just gets messy.

This is not accurate. The _ability_ of an ISP to route packets is not affected
if another ISP stops routing packets (their ability to rout packets is
independent). There will be a change in bandwidth usage but not in ability. If
a TBTF bank goes down, it is entirely possible that other banks have financial
contracts with it that are necessary to be fulfilled for the second bank to
remain operational (their ability to route financial payments is dependent)

------
ShellCasing
What we need is a federal licensing agency for bankers that is similar to the
state-by-state licensing agencies for lawyers. That way, when a banker gets
caught violating ethical obligations (e.g., defrauding people) he can be
disbarred from ever working in finance ever again. Proving an ethical
violation is much easier than proving a criminal act.

------
guelo
I doubt the Consumer Financial Protection Bureau will survive the upcoming
Trump/Republican attack on federal regulatory agencies.

~~~
user837387
Isn't it awesome? And in a couple of more years when we have another meltdown
we can again say that nobody saw it happen and blame everybody but ourselves.
F*ck us.

~~~
orsenthil
It has around 600 Million dollar budget and employs 1000s of people. The
upcoming crazy administration putting their foot on anything of that scale
could be suicidal.

------
quantumfoam
Big whoop. No jail time served. Stumpf stepped down and the criminal
enterprise (that remains till this day) was charged with millions that when
compared to their profits (in the billions) range, what really was
accomplished? The worst thing that happened here was he lost his job but kept
a nice severance package and took a vacation. Talk about justice.

------
Timshel
The takedown in question:
[https://www.youtube.com/watch?v=xJhkX74D10M](https://www.youtube.com/watch?v=xJhkX74D10M)

------
orsenthil
Can she and other senators question and bring down Trump if he does something
illegal?

~~~
zodiac
Yes, Congress can impeach and try the President
([https://en.wikipedia.org/wiki/Impeachment_in_the_United_Stat...](https://en.wikipedia.org/wiki/Impeachment_in_the_United_States#Federal_impeachment),
[https://en.wikipedia.org/wiki/Article_One_of_the_United_Stat...](https://en.wikipedia.org/wiki/Article_One_of_the_United_States_Constitution#Clause_6:_Trial_of_Impeachment))

~~~
filoeleven
But the chances of that happening are slim, given that the Republicans will
control both the House and the Senate, and in the end a successful impeachment
requires a 2/3 majority. It could happen if he makes enough Republicans angry
and/or does something illegal _that they agree should be illegal_. This would
likely exclude running afoul of some business law that the current Congress
enacts to specifically target his divided interests (like trying to force him
to put his business in a blind trust, something that every other president has
done by convention).

Then again, the establishment Republicans would probably be much more
comfortable with Pence in the driver's seat, so who knows?

------
known
VW CEO didn't resign;

~~~
CodeWriter23
[http://www.npr.org/sections/thetwo-
way/2015/09/23/442818919/...](http://www.npr.org/sections/thetwo-
way/2015/09/23/442818919/volkswagen-ceo-resigns-saying-he-s-shocked-at-
emissions-scandal)

------
nxbtch
great capitalism, great democracy

------
adekok
What do the libertarians say about this theft? While I understand the idea of
the free market, I don't see how that would have protected the consumer in
this case. The CEO has millions of times the power of the average consumer,
and can harness thousands of people to his agenda.

The consumer is left to either (a) pay the "idiot" tax of being stupid enough
to sign up for a thieving bank, or (b) rely on the government to protect his
best interests.

While I have severe misgivings about the efficiency and corruption of large
government, I find it hard to argue that a perfect "free market" would be
better for the consumer.

~~~
Meekro
I can't speak for all libertarians, but I consider myself a libertarian and I
can make some observations about this whole situation..

1\. Those customers who were stolen from will get to participate in the mother
of all class-action lawsuits. The settlement will be outlandish. Juries hate
huge corporations that screw the little guy, and the lawyers on both sides
know it.

If you don't trust the class action to provide you with an equitable
settlement, you can opt out and sue them individually. No doubt many lawyers
are already lining up for the easy money here.

I've never known a libertarian who opposes the existence of a legal system.

2\. So far, no one has produced evidence that the CEO knew about this or
allowed it to happen. Putting him in prison would therefore be unjust. The
article claimed that his sales quotas were excessive, but the only source for
that is the same employees who knowingly defrauded their employer. Relying on
their honesty seems like a bad idea.

What we know for sure is that he had sales targets for his salesmen, which is
not unethical or unusual. We also know that the vast majority of Wells Fargo
salesmen did not resort to fraud to hit those targets.

Even if the sales targets were high, the employees should either step up to
the challenge, request a transfer out of sales, or resign. There are no
excuses for defrauding your employer, and claiming "my job was too hard, so I
lied!" is cause for termination.

~~~
pktgen
> 1\. Those customers who were stolen from will get to participate in the
> mother of all class-action lawsuits. The settlement will be outlandish.
> Juries hate huge corporations that screw the little guy, and the lawyers on
> both sides know it.

Nope, since they have a mandatory binding arbitration clause. See
[http://www.nytimes.com/2016/11/24/business/wells-fargo-
asks-...](http://www.nytimes.com/2016/11/24/business/wells-fargo-asks-court-
to-force-customers-to-arbitration-in-fake-accounts-cases.html?_r=0).

~~~
shawnee_

      "mandatory binding arbitration clause"
    

Wells Fargo hay have put an arbitration clause somewhere buried in their fine
print; however, "binding" is what would be questioned by the courts. Probably
pretty easy to refute its bind-ability, given that WF has negated and
demonstrated incompetence on its side of the contract duty: safeguarding the
consumer's info.

(Binding contracts require competent parties on both sides).

[http://www.nytimes.com/2015/11/01/business/dealbook/arbitrat...](http://www.nytimes.com/2015/11/01/business/dealbook/arbitration-
everywhere-stacking-the-deck-of-justice.html)

~~~
gnicholas
The Supreme Court has upheld binding arbitration agreements in the last few
years, and unfortunately "demonstrating incompetence" isn't grounds for
voiding this. There's also nothing here to indicate that customers or the bank
were not "competent". There are certainly issues with the fraudulent accounts,
but the entire relationship with the bank would likely be covered by the
arbitration clause from the initial account setup (which the customer agreed
to). Customers would have to show something along the lines of fraud in the
inducement.

------
throwayawnotime
Take Down? WTF he still has all of his many millions and is not in jail.

------
pcunite
It would be good if Elizabeth Warren would look into the Clinton Foundation.
Make sure things are up to snuff, so to speak.

------
themark
Im too lazy to look, but I'm pretty sure this same thing was reported many
times before.

------
stanfordkid
I absolutely love Senator Warren. That being said, the notion that the stock
price of Wells Fargo could be significantly impacted by this scheme (which is
central to Ms. Warren's argument) is not well founded.

Wells Fargo makes 86 billion in revenue per year. Even if 10 million accounts
were made and each made a thousand dollars -- (incredibly generous) ... over
the course of 5 years this accounts for 1 billion in revenue or 200 million
dollars per year. Annualized it is much less than 1% and would not inflate the
stock price.

These guys definitely made a mistake. It wasn't calculated fraud. It was bad
incentive setting. Politicians like Warren don't intuitively understand how
hard it is to actually control a group of thousands of middle-class workers
and get them to do things.It is not easy to govern ... sadly politicians are
the least knowledgable in what it takes and they hurt good people like Stumpf
(I trust his leadership and qualities because he was appointed by Buffett).

WF stock dropped a bit prior to the hearing and I bought as much as I could.
Luckily most of Wall Street is smarter than such politicians and it paid off.
Thanks Senator Warren.

What I would like to see is politicians be held to the same accountability as
these guys. That would be hilarious. I wonder how well Obamacare would do if
we could actually measure results based on metrics.

Our society needs people that can blend business acumen with the spirit and
heart of people like Elizabeth Warren. Only Buffet or Gates come to mind.

~~~
pmorici
The point wasn't for these fake accounts to generate revenue. The bank
executives knew that Wall Street used the number of new accounts opened as an
indicator in their valuation of the stock. They explicitly reported new
accounts in their quarterly results. Knowing this the executives pursued
policies to boost account numbers reasoning that it would boost the stock
price by boosting expectations even though it wouldn't boost revenue.

~~~
stanfordkid
This is the central point I am making: there is little evidence that: 1) The
stock price was inflated. This can be seen by the fact that the valuation of
WF is relatively stable both prior to and after this debacle. (outside of the
short term volatility due to the scandal). If what you are saying is true then
we would have expected the market to dump WF shares at the "inflated" price.
_This did not happen_

2) That the intention of the executives was to increase the stock price by
leveraging the fake accounts rather than to increase real accounts whilst
policing an incentive scheme that was harsh to the point that it resulted in
bad behavior by low level workers.

My point is that the revenue impact from the addition of fraudulent accounts
is so negligible that to equate it to "fraud" is misleading.

Any incentive scheme has cheaters, abusers and fraudsters. That is the _norm_
in an organization that employees thousands of unskilled workers.

This is a case of an incentive scheme that was pushed too hard despite market
realities -- to the point where people felt compelled to lie to keep their
jobs (which was morally wrong on their part -- regardless of "how tough it is
to find work" or "needing to put bread on the table"). Those people were
fired. In order to understand if this was fraud or not we need to look at
whether or not these incentive schemes generated an increase in LEGITIMATE
accounts being created.

If this _was_ the case then the incentive scheme worked and policing needed to
be increased or modifications needed to be made to the management to prevent
bad behavior.

If this _was not_ the case -- then we have to ask why the management chose to
push harsh incentive schemes knowing that it only created fraudulent accounts.

The type of black and white thinking that is going on in this thread (and
elsewhere) is emotionally driven due to the size of Stumpf's paycheck. Most
people are just not used to seeing $100mm dollars.

I would be very skeptical of articles like the one linked to above. Anyone who
has lead a large organization that contains people that couldn't compete or
got fired and angry has heard these types of gripes... they are a dime a
dozen. My point is that Stumpf paid for his sins and I don't think we need to
roast him further. I think Warren's appraisal of the situation is excessive.

~~~
pmorici
The problem with this argument is that they were aware of the fraud as early
as 2007 and did nothing to correct it. They were complicit in it.

[http://money.cnn.com/2016/10/18/investing/wells-fargo-
warned...](http://money.cnn.com/2016/10/18/investing/wells-fargo-warned-fake-
accounts-2007/)

~~~
stanfordkid
You are right. I am wrong. Thank you for teaching me!

Was not aware of this letter:

[https://www.documentcloud.org/documents/3143757-Wells-
Fargo-...](https://www.documentcloud.org/documents/3143757-Wells-Fargo-Stumpf-
Letter.html)

