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Wells Fargo CEO John Stumpf Steps Down (wsj.com)
312 points by smaili on Oct 12, 2016 | hide | past | web | favorite | 204 comments

I highly recommend listening to a recent episode[1] of Planet Money. This was by no means an accident. As a short summary of one employee's plight:

Ashley, working for them and making only $35k per year in San Francisco, was continually harassed to sign people up for accounts they didn't want. An old man comes in, pensioner, $200 in overdraft fees due to being duped into excess accounts. She dips into her own savings to get him back in the black. She reports the incident to the internal ethics line. Nothing. Tries again. Nothing. She refuses to fraudulently push excess accounts onto people. Fired. Worse, Wells Fargo put her onto a permanent blacklist that others in the industry pay attention to - she can't get a job anywhere else.

Imagine making $35k per year in San Francisco - insanely low given the region - and dipping into your own pockets to help fix a situation your own company created. Then, as thanks, being eventually fired by that company for not continuing the practice and being blacklisted in your field of work. I'm desperately hoping Ashley sues Wells Fargo in a defamation suit but I fear the likelihood of that is low - even if it's not the first time it has happened to Wells Fargo[2] ...

At best, upper management were willfully negligent of the impact that their insane sales goals had on the ethics of the company. At worst, upper management were actively trading any ethical notions they could get hold of for money, ripping apart the lives of employees and customers on the way.

[1]: http://www.npr.org/sections/money/2016/10/07/497084491/episo...

[2]: http://www.forbes.com/sites/billsinger/2011/12/15/wells-farg...

> This was by no means an accident.

Thank you for pointing this out. I keep seeing comments to the effect of "Wells doesn't make any significant profit from opening bogus accounts (unused accounts are typically unprofitable to the company), so the executives couldn't have wanted this." These comments reflect a misunderstanding of modern executive compensation and the incentive structures set up for executives in large companies like this.

What happened here is called control fraud [1], and it started at the top. Stumpf repeatedly bragged to investors about Wells' supposed cross-selling abilities, and these representations were priced into Wells' stock (being good at selling would suggest future growth). Because a higher stock price maximizes his own personal compensation (and his cash compensation, i.e. bonus, as well), the incentives down the line were set to maximize this metric. Tolstedt was in charge of the retail unit and her own compensation was substantially based on this same metric. This continued down to the low-level branch employee level, where the perverse incentive structure and ability to hire and fire (and threat of such) was guaranteed to produce massive fraud. The company and its shareholders do not benefit from this (they are victims, essentially); the responsible executives do, since this increases their personal compensation.

[1] https://en.wikipedia.org/wiki/Control_fraud. You should read more about what William K. Black (former federal S&L regulator during the S&L crisis, at the Office of Thrift Supervision and its predecessors; Keating Five whistleblower; and current economics & law professor at UMKC) has to say on this topic in general.

> A control fraud will often obtain "investments that have no readily ascertainable market value", and then shop for appraisers that will assign unrealistically high values and auditing firms that will bless the fraudulent accounting statements.

A whole new way to think about startup acquisitions!

Unfortunately, estimating future value is fundamental to the nature of all start ups. Of course it's often going to be wrong. The difference here is Wellsfargo has been around for ever. Their market value should be mature, stable, and reliable by comparison.

Moreover, the business they are in is such that you shouldn't expect to see hockey stick type growth predictions.

Sometimes it happens that a company has been around for a hundred years but then enters a new business and sees phenomenal growth. That is reasonable. For Wells Fargo's operation, no.

There's always that possibility to buck the trend, but they certainly didn't.

Great observation. Im going to have to think more on this.

+1 for William K. Black - he's a terrific authority on this subject and a fantastic speaker.

Yes. He also got paid on it.

Vanity metrics aren't just for tech firms!

11 years ago, my first job out of college was as a "personal banker" for Wells Fargo. If I remember correctly, our goals were 8 "solutions" a day. Every few hours either a shift leader, assistant manager or the branch manager would come over and ask you "how many solutions do you have?" If you said a low number, you'd be told that was "unacceptable" and coached on how to generate more solutions (everything from forcing a customer to close and reopen accounts if they lost a debit card, rather than just use the built in lost debit card feature, to splitting large CDs into smaller CDs, to forcing old people without internet access to sign up for online access). If a retired customer came in and you didn't pitch them a reverse mortgage or a home equity line of credit, you would once again get a talking to. Sometimes managers would come over with signed printed account applications that they had sourced and they had you enter those accounts into the system. One of our "best"(read, high performing) bankers had opened accounts for a dead person (after the dead person's daughter came in to close their accounts), I reported her, nothing ever happened.

It was an incredibly high pressure environment that led to unethical behavior and a situation in which customer service or doing what's right for the customer was not valued, I quit after a year.

What rationale was offerred for forcing Internet access?

What was Wells's interest in doing this?

We sold it as a "security precaution, if you create an online access account in our branch, hackers won't be able to create one for you."

As far as WF's interest goes- this is one of those situations where the bank's strategy relied on having customers use as many products as possible, the thought was that if you use many banking products, you're less likely to switch banks. So all sales goals were set around the number of products (we called them "solutions") you sold. This is a rational strategy, but since things like debit cards or online accounts counted as solutions and the sales pressure was immense, the system could be gamed by selling solutions that really didn't help the company's overall goals. It was a broken incentive system.

"permanent blacklist"?

That sounds like the High Tech Employees Lawsuit case, but a much easier win for a more sympathetic class of victim.

According to the episode it was the U5 form[0]. Banks use the form as one of the employment references.

[0] http://www.finra.org/industry/terminate-individuals-registra...


Every time she tries to get a job anywhere, that form will be checked by her potential employer?

I mean, it makes sense, there's a certain amount of trust involved in finance so you'd like to know if a prospective employee had been fired in the past on suspicion of fraud/salami slicing/whatever

It makes sense if humans were perfect. When an employee objects to unethical behavior and acts accordingly, it makes less sense.

Exactly. Libertarianism and communism seem like perfect utopias but "If all men were angels, no government would be necessary."

Unfortunately, company insiders may see little difference in a "misbehaving" employee, regardless if it's in the public good and/or for personal gain, because limiting the threat of public exposure is often the paramount priority in the short-term, which may ultimately go against long-term business and customer relationships. And an "untrustworthy" bank is unlikely to survive on it's own for very long.

This form appears to be required by government. No matter what you think about libertarianism, this isn't it.

There is a certain amount of trust involved in pretty much every job. Whether it's a cashier at a supermarket or a Barkeep in a pub.

Most jobs involve some referencing, talking to previous employers etc. I guess this is different because the banks all agree to abide by the black mark.

Not to be overly dramatic but I would imagine it depends on who the jury sympathizes with.

Yes, and it's very likely they will sympathize moreso with a woman making 35k who was fired for reporting a crime.

> it depends on who the jury sympathizes with

It does, but can you really see a 'jury of peers' sympathizing with Wells Fargo in these circumstances?

I do.

I don't have a crystal ball or any insider information but I believe the stakes are higher for a corporation than for the plaintiff because defeating an assault could send a message to other potential claimants. (Think runaway juror)

I don't know how much weight you'll give to some study but for What it is worth, here's a semi related article



Of course, the defense knows this and this unwillingness to go to trial factors in when talking about exact dollars and cents of a settlement.

At the end of the day, it doesn't even matter because I imagine most of the share holders of Wells Fargo are not in on any deal like this and arguably are the victim here more than the customers or the employees of Wells Fargo.

I feel the same way when some city pays to settle a case brought up against a city employee's actions. Cases like this are a net loss to the society because likely nothing will change for the better. The cost of getting caught just gets factored into the cost of doing business.

Sorry if I sound ambivalent or worse cynical. It is because I'm trying to tell myself that I'm wrong and things will change for the better if this woman wins her lawsuit against Wells Fargo. However, I know that this John Stumpf fellow will be back as either a consultant or a board member within a year. He didn't lose anything. Others have little incentive not to follow his lead.

> upper management were willfully negligent of the impact that their insane sales goals had on the ethics of the company.

> "Our average retail banking household has about six products with us. We want to get to eight ... and beyond," stated one Wells Fargo "brochure" called "The Vision and Values of Wells Fargo," according to the lawsuit. http://abcnews.go.com/Business/wells-fargo-bankers-accused-f...

One bank in NL (abn amro) is currently running an ad campaign with the slogan 'sign up for 3 more products and get 75 euros cash back' or something to that effect. It seems they've been going to the same seminar.

> It seems they've been going to the same seminar.

Was it hosted by Alec Baldwin? Was he constantly yelling "Always be closing!"?

    ...we're adding a little something to this month's sales contest.
    As you all know, first prize is Cadillac Eldorado.

    Anybody wanna see second prize?
    Second prize's a set of steak knives.

    Third prize is you're fired.
(Warning: very NSFW language) https://www.youtube.com/watch?v=H68eCEWKb7M

A while back, credit reporting agencies hustled to adjust in the face of a few, but monetarily very successful, libel suits -- IIRC from memory.

It would seem that, with the right legal representation -- one willing to go the distance -- Ashley might have grounds for a very significant libel suit.

Wells Fargo management deserves to go to jail, in my opinion. However, it would also give me great joy to see them lose hundreds of millions of dollars to such suits.

They wholeheartedly deserve it, as do some of the line employees who had to endure such abuse.

Further, if the "gubmint" was serious about investigating and prosecuting criminal behavior, in addition to actually holding those responsible for policy accountable and jailing them, I'd like to see the laws for once enforced, at Federal and State levels, that require the government to cease doing business with financial establishments convicted of criminal offenses.

We have laws. And we have resources for criminal investigations. For once, let's actually put them to use.

If not, go after the politicians and government employees obstructing justice. If not with a formal charge, then by ending their careers.

> that require the government to cease doing business with financial establishments convicted of criminal offenses.

I guess that's why most of those settlements are worded so that there is no criminal offence. As in, "Company X agrees to pay $XBn to the gubmint, but admits no wrongdoing."

I wonder if, once pushed to a higher court, such a clause (or the whole settlement) could be declared invalid.

As in, if you did no wrong, why exactly are you giving $XBn to the government?

Is that some kind of bribe? As in, I give government money, they don't bother me about the crap I did.

Frankly the whole thing looks like a regular business contract between X and government, not a "guilty" judgment.

It is enforced. See Arthur Andersen.

Funnily enough, I learned about Arthur Andersen in the context of why it is not enforced.

Subsequent firms have committed far worse offenses.

Remember WF was one of the banks that failed the stress tests after the 2008 financial crisis. I've been trying to get away from WF for a while now, but no other bank can fill its shoes in terms of online services and ubiquity. Yet it has a culture of predatory capitalism where "your loss is our gain".

I never wanted to do business with WF in the first place, but I bought a house a few years ago and the mortgage company sold my mortgage to WF. Being forced to be someone's customer against your will sucks.

I wonder if you could easily force them to prove ownership of the mortgage. At least until 2008, these transactions were apparently so common and disorganized that in the mortgage meltdown many lenders had trouble finding the paperwork.

(though I have no idea how one would go about that and it's probably too risky)

That really does suck, is there anything you can do to prevent this sort of thing? Mortgage through a credit union or something?

Perhaps you can refinance? Lots of banks offer no-fee refinances. I used Cash Call (not that they have an amazing reputation) but they did a good job with my refi.

... and then it's very likely that you will end up back with Wells Fargo, since they are one of the few banks that service mortgages. Most finance companies sell your loan shortly after originating it.

Yep, happened to me -- had a mortgage with WF, refinanced through a broker and had a mortgage at another bank, then 6 weeks later, got a notice saying that WF bought my mortgage, so I was back with WF.

Citibank tends to keep the mortgage servicing to themselves. They might sell it to fannie mae or similar but you still deal with them as far as payments go.

Try a credit union. I would think it unlikely that they would sell your mortgage.

Well it may be unlikely but it did happen to me, and presumably "several" other members of my credit union

Why should you care who services your mortgage? The only thing on your mind should be proper treatment of any payments you make exceeding your standard payment. You need to be sure that extra amounts are credited to principal.

Because you are funding evil? Why would you not care? Why is half of the world sociopaths?

> Why is half of the world sociopaths?

That's probably a rhetorical question, but I'll bite. Game theory applied to evolutionary biology provides a compelling qualitative answer to this question. You can read about it in Richard Dawkins' "Selfish Gene".

Basically, if social interaction is regarded as an Iterated Prisoner's Dilemma, with options to cooperate or defect at each turn, one might say that a society cannot prosper if everyone always defects, but also that a society made up exclusively of cooperators provides an advantage to genetic mutations that give rise to defector behavior. Societies will therefore tend to have a some degree of cooperation with some freeloading from defectors, and the balance will fluctuate.

There'a so much speculation in that entire paragraph, I don't think that OP would accept this.

No, but half of HN might be.

What is special about WF?

I use schwab as a main account (free ATM usage world wide w/ no currency exchange fees), keep a free BoA eChecking account for cash deposits that I haven't done in years and have credit cards with various banks.

I also use schwab & vanguard for index funds.

I use a local credit union. I don't understand what the big national banks offer that is appealing. What "online services" do they offer that every local bank/CU in 2016 doesn't offer as well?

Global ATM fee reimbursement and 24/7 customer service. Helpful when you travel a lot.

Ditto; switched from WF to Schwab and haven't looked back.

I looked at moving an account to Schwab, but it looked like they cut off their international wires. Did you receive any internal message about this? I may have been mistaken, but I recall when I looked a little over a year ago they offered the service, but when I look now, they do not:


As a slight aside, since I've been hammered by this in the past, even if the card says no foreign transaction fees, that can be sort of a lie if you're getting screwed on the foreign exchange rate. Unfortunately, figuring out that rate can be extremely difficult not just because the spot rates changes daily, but because most banks won't disclose their formula. At least for wires, some banks like BofA and Wells Fargo take upwards of 4% off the spot rate (think xe.com numbers) in addition to fees. Though, do they do not and not required to call this a fee. Basically, what I found is that the no foreign transaction fee cards can be a scam. I have no idea what Schwab is like and I'd be curious to hear.

I've never been a customer of wells fargo, but USAA is great if you can get in. They don't have any branches, but I've never had an issue with that in the 5 years I have been a customer of theirs.

I lived in SF briefly and noticed the presence of WF everywhere in CA. I am from NYC, so Chase and Citi are more likely to be around. Just curious about "but no other bank can fill its shoes in terms of online services and ubiquity." I don't have that experience with other banks - I find the right agent and I get the right service, not every time, but definitely there are good people I can work with. Mind to clarify your experience with other banks?

I should have clarified: "no other bank can fill its shoes" should have included the phrase "that isn't just as bad reputation-wise". Citi and Chase may be even worse than WF.

In SF more than everywhere else, would you ever need to withdraw cash? I'd think as long as you had apple-pay or a debit card you'd be fine.

I have very little experience in SF, but I'm sure that drugs are still largely a cash business there.

Of course, a drug dealer with a square reader plugged into his iPhone would happen first in SF.

There are many places that are cash only. Tattoo parlors (reputable ones, at that), restaurants, tips for valets, etc. Cash isn't dead just yet.

There are still restaurants that are cash only.

I am limiting the amount of money I keep in Wells Fago (for their online services, etc.) and am instead using two locally owned and run credit unions. As convenient? No, but it feels more secure.

I abandoned the big banks long ago, choosing to exclusively use credit unions. I use online banking, bill pay etc...

The only thing I can think of that I can't get from my credit union is depositing a check via phone/photo. For me that's not a big deal, a local ATM machine works fine for those infrequent occasions.

What other online services am I missing out on, that only the big banks have?

I can strongly recommend, with minor caveats, SFFire and Provident CU. SFFire is mostly sf, Provident is mostly peninsula. Both offer smartphone check deposits.

Minor caveat: don't open your account or apply for loans online. They both "offer" it, in the sense it's theoretically possible to do, but a giant pita. Just go to a branch. Provident took 3 weeks to replace a stolen credit card.

Other than that, they're great. I've been in branches for the two probably 5 or fewer times total in 8 years of being a customer.

Also, a human answers the phone when you call! One that's empowered to help you!

Perhaps I'm just lucky but I get all I need from a regional bank in my state. I am lucky I don't travel a too much and I never withdraw cash, so I don't have to worry about the ATM fees. Online services are just about okay for me.

What's this "permanent blacklist"? Is that something on the financial sector?

It's FINRA's form U5. Wells listed her as discharged for "failing to perform job duties".

You can see the form here: https://www.finra.org/sites/default/files/form-u5.pdf

you bet your ass certain companies can add/edit/view secret notes on your credit history.

I work for a huge card company please tell me more about this.

WOW this casts a whole new light on the idea of bank accounts for me, basically rent seeking via excess bank account ><

She should make the rounds to alt media: Thom Hartmann, The Jimmy Dore Show (TJDS) and TYT Interviews.

>>ripping apart the lives of employees and customers

You don't think that's a teency bit mellowdramatic? That description seems perfect for Bernie Madoff, Enron, et al.

The entire situation is downright despicable.

If you listen to the podcast, they made employees stay in an active crime scene (bank robbery) where the thief defecated all over the floor to make phone calls to try to open new accounts.

Many employees (many with similar wages to Ashley) left due to health reasons caused due to the stress of the job. They were reduced to calling friends and relatives begging to create new accounts so they could meet quota. Ashley notes throwing up under her desk as fairly standard practice. If they didn't reach quota, they would be fired and blacklisted like Ashley was - though Ashley was fired for acting morally.

Customers may not be aware of the impact that such products had on their credit ratings. Given credit ratings are incredibly complex to "fix" and you may only become aware of them when trying to make a large next step in life (loan for a house) ...

And worst, the pensioner, who lived on minimal savings and who is not well equipped to sort out fraudulently opened accounts, was overdraft and unable to fix the situation himself. Who knows how many pensioners were sucked dry, what struggles they then faced on an empty bank account, unaware of what might even be the problem.

No, it's accurate. Having a bank steal your money when you're a customer is devastating. Having a bank fire and blacklist you because you were an ethical employee is also devastating. The only difference with Madoff and Enron is the scale.

Listen to the episode, it actually isn't melodramatic. They were hiring young bankers, trading on their connections until they ran dry, then dumping them, for a new batch. That's just the start and the environment goes down from there.

>Wells Fargo put her onto a permanent blacklist that others in the industry pay attention to - she can't get a job anywhere else.

I just listened to this episode last night, by chance.

She speculates that she is on a blacklist, because she's having trouble finding work. But there's a more charitable (to the other banks) explanaton: she was a very low level employee who, true or not, just got fired for a massive fraud under investigation in the public eye. Maybe they're simply thinking "this might not be the best hire right now" and move to the next resume, of which there are probably many.

Because, as much as people in management are responsible, there were also front line employees actively committing fraud here. They are also responsible. In fact more so. Her case is not the norm.

It sounded like they verified her speculation:

SMITH: Ashley tried to get another job in banking, but she found that she never made it very far past the initial interviews. She suspected that Wells Fargo had put some sort of black mark on her record somewhere. And it turns out that is exactly the case. Wells Fargo wasn't joking around when they said they would make it hard for her to find work again.

ARNOLD: No. Wells Fargo wrote her up on what's called a U5 document. It's like a report card for bankers basically. We tracked it down, and we asked Ashley to read what it said.

ASHLEY: Failure to perform job duties.

SMITH: Any bank - any bank that Ashley applies to will see this line, failed to do job duties.

ARNOLD: The form does not mention that those job duties were the sales goals that everyone we spoke to said were unrealistic and that are at the center of a series of ongoing investigations at the state and federal level.

SMITH: It just says failed to do job duties. It was the first time Ashley had seen it in print.

ASHLEY: It's like having a black cloud that's kind of looming behind you. And I'm always trying to get in front of the cloud, out of the cloud, into the sunshine, but it's always there.


That's what's so great about Planet Money and Radiolab: They do some actual journalism and try to track down sources. There's only very few outlets left who do that and we should support them as much as possible. In the podcast world these are the only ones coming to mind (along with some spinoffs like More Perfect) - maybe someone here has others. I do listen to others sometimes, like Invisibilia or Freakonomics, but in terms of journalistic merit they don't even come close IMO.

You must not have listened very closely. As noted below in the transcript, they confirmed the U5 form. Also she started in 2007 and it was noted she worked there for 5 years, i.e. fired around 2012 before shit hit the fan.

Her story is actually rather common for honest employees working at Wells Fargo, which is why they are going to get sued by many for wrongful termination.

Management mismanaged employees and created a culture of fraud. They profited heavily from it. If anything, they are the most responsible for creating the shitty culture. Why let them off the hook? They get larger salaries, while deflecting the responsibilities that come with the decisions they made to pressure employees into fraudulent activity while firing those that reported it? That's quite insane.

>they confirmed the U5 form

Not a "blacklist", and not unexpected when you're canned from a finance job. As far as WF is concerned, she committed fraud, so they filed a U5. Would you rather they not? It will be investigated; if it's unfounded she can sue.

>Her story is actually rather common for honest employees working at Wells Fargo

Yes, there are honest employees caught up in this. There are also many dishonest ones.

>If anything, they are the most responsible for creating the shitty culture

Really? More responsible than the people who commit the act? That is ridiculous. Have some personal accountability. If my employer asked me to do some fraudulent, I would refuse. I certainly wouldn't rip people off, then complain that I was "told to".

No, as far as WF is concerned, she REFUSED TO COMMIT FRAUD, and so that's why she was fired. And because she refused to go along, she was blacklisted.

"Really? More responsible than the people who commit the act?"

Absofuckinglutely. If you are in a position of power over someone, and you tell them to commit fraud or they are fired, then YOU are culpable.

"If my employer asked me to do some fraudulent, I would refuse."

I'm glad you can afford to do so.

"I certainly wouldn't rip people off, then complain that I was "told to"."

I'm glad you can afford that moral high horse, too.

How are they more so responsible for the fraud if they were fired for not doing it?

Go Elizabeth Warren! Without her prodding, I am sure this would never have happened. He was very happy with firing the 5k employees and not taking any blame on himself for what was essentially his push.

I suspect Warren Buffet may have pushed for Stumpf's resignation/termination, as well as other damage control measures. This is a similar situation to the Solomon scandal, although Buffet has a smaller stake in WFC.

Was WF one the banks he took a stake in after the 2008 crisis?

From an article last month [1]:

> Berkshire Hathaway (BRKB) owns nearly 470 million shares of Wells Fargo (WFC), a 9.5% stake. Buffett also personally owns a little more than 2 million shares in the bank. The combined value of that investment has dropped by nearly $1.5 billion since Friday.

I could see why he might be upset.

[1]: http://money.cnn.com/2016/09/14/investing/warren-buffett-ber...

I would also suggest Buffett is very focused on his reputation, and doesn't want to be seen tolerating behavior like this. From one of his letters to his managers:

   We can't be perfect but we can try to be. As I've said in these memos for 
   more than 25 years: "We can afford to lose money — even a lot of money. But 
   we can't afford to lose reputation — even a shred of reputation." 
   We must continue to measure every act against not only what is legal but 
   also what we would be happy to have written about on the front page of a 
   national newspaper in an article written by an unfriendly but intelligent 

Indeed, thats a lot of wealth that has evaporated in a short period of time.

Interesting, from your link:

"In fact, Berkshire Hathaway filed papers with the Federal Reserve this year for approval to boost its stake in Wells Fargo beyond 10%"

You're probably wrong.

First of all, Warren Buffett has recently petitioned the SEC to allow him to own more than 10% of WFC. If the SEC were to allow that, BRK's holding in WFC would have to be (basically) silent. No control over WFC management could be exerted.

WRT to Solomon, as a percentage, yes BRK owned more, but in absolute terms, WFC is much larger. It's like 20:1.

I'll save my you go girl for when he's in jail.

Prodding? What investigating did she do?

Uh, she invented the entire fucking government agency that polices this crap, absent which, there would be nothing.

What does investigating have to do with prodding?

Meanwhile, she prodded pretty heavily in those congressional hearings...

Non-paywalled article with basically the same information: https://www.washingtonpost.com/news/business/wp/2016/10/12/w...

Why isn't anyone in jail again? We will choke a guy to death for selling cigarettes incorrectly, and can't put people stealing millions in jail.

This is why the management involved is unlikely to see prison: https://www.opensecrets.org/orgs/recips.php?id=D000019743

Well, apparently in America, it helps to not be black.

If Stumpf were black we'd be reading the exact same story.

cf. the career of Richard Parsons, CEO of Citigroup: https://en.wikipedia.org/wiki/Richard_Parsons_(businessman)


The race war is just a distraction from the class war.

Because once you are at that level, you are in the inner sanctum of many people that you can bring down with you. Since nobody wants that, he just gets a slap on the wrist.

money, power, connection, take your pick

The New York Times this morning about his supposed successor:

"As chief administrative officer from 2010 to 2011, however, Mr. Sloan’s role included overseeing Wells Fargo’s human resources and reputation management. He then became finance chief for three years. And one of his direct reports when he was promoted to chief operating officer last year was Carrie Tolstedt, who ran the offending community-banking division until earlier this year.

That makes Mr. Sloan a member of the inner circle that would have known about the wrongdoing from its early days and tried to deal with it. This group hardly covered itself in glory: It was still handing out pink slips in 2016, five years after the first bankers were shown the door. Mr. Stumpf and Ms. Tolstedt have already ceded compensation for the mess. Investigations by the board and regulators may yet implicate Mr. Sloan and others."


Elizabeth Warren deserves a lot of credit for putting the heat on Stumpf. Coincidentally, one of the leaked Democratic e-mails from this week features banking lobbyists complaining to Democratic party officials about Warren:


The apparent coziness between the party and the banks is a whole other can of worms, but that Warren doesn't hesitate to go against the party grain and attack folks like Stumpf is a nice thing to see. Good on her.

Senator Elizabeth Warren's questioning at the hearing is worth watching: https://www.youtube.com/watch?v=xJhkX74D10M

While I agree with her points, it seemed like she really was preaching rather than investigating (at least for the first five minutes that I watched). Her questions were leading questions of the yes/no variety where she already knew the answer. I think Stumpf needs to be held responsible beyond resigning (canceling his golden parachute would be a good start). But I think Senator Warren should either give a speech or ask honest questions, but not give a speech disguised by a veneer of questioning.

Nothing personal against Senator Warren, I assume this is de rigeur for Senate hearings.

A previous article said he could leave with $200M which is not a golden parachute but built up over 30 years of working there.

This article says they could take back $41M in stock options, another $4M in bonuses, and probably $20M in 2016 pay. (They paid him $19.3M in 2015.)

$200M - $65M = f*ck me

My understanding is that they created a system of unrealistic expectations as far as accounts per customer, had managers from the top that pushed this on people and they got fired.

Then, in the case where employees started reporting that they were forced to do the activity to keep their jobs, nothing was done. This seems more like a lever that can be pulled here:

Prevent banks from having ineffective whistleblowing processes by mandating use of a FINRA whistleblowing program. The person in the top comment being fired would get protected by Finra for her future employability, and Wells Fargo and other banks would take whistleblowing far more seriously. I admit it sounds very simplistic, but is there something crucial I'm missing here? I can't see how one would file charges at the top executives for "incompetantly making an internal ethics line" and "setting too difficult sales goals, causing an unintended fraudulent effect".

Until the headline reads "Wells Fargo CEO John Stumpf Goes To Jail", nothing changes.

I would be fine with "Wells Fargo CEO John Stumpf Ordered to Pay Back Fraudulent Fees to Wells Fargo Clients, Out of Own Pocket" (possibly down to some wealth limit, say, he can keep the $35K he apparently pays to his employees if his fortune is not enough to restore the damage). I am not a big believer in jail as punishment (as opposed to "place we keep people who are dangerous to others, for the good of society at large"). The remedy to fraud should be a fine, but it should be a fine commensurate with the level of fraud rather than a slap on the wrist and it should affect the people involved, not just get passed down to corporate stockholders (which includes pension funds and the like). I would also be fine with a court injunction banning him from working on banking, again, not as punishment but as "this man can't be trusted by society to handle other people's money". All of this after proper trial, of course.

That said, bank CEOs are a Least Concern species when it comes to overuse of punishment in the justice system, so if someone wants to jail them until we decide not to jail many other types of non-violent offenders, well... I am not fighting that one too strongly. I just think that in one way it would be a step in the wrong direction.

Punishments need to be out of proportion to the financial damages they do when they erode public trust, which is a good held in common (and the key to prosperity in the west).

This is why someone who runs a charity scam should be punished more than someone who simply mugs people.

Punishments should always be greater than the financial damages, because otherwise the expected value of fraud will always be positive.

It depends. Do you consider loss of reputation part of the punishment, or just an additional natural consequence of the fraud? If you want to think like an economist about fraud, in terms of pure monetary cost/benefit (which is not how people, even CEOs, think), then the game is something like this: Every year you can get $X by being honest, or $(X+Y) by committing fraud, you have probability p of being caught every year (assume: independent) and will have to pay $Z if caught, per year you stole $Y. Additionally, because of loss of reputation, you will only be able to earn at most $W honestly afterwards, instead of $X (assume: it won't be possible/reasonable for you to get away with fraud a second time). Thus, so long as i(X+Y-Z) + W(years_of_career - i) < Xyears_of_career any time (1-p)^i > 0.5, fraud is disincentivized. Sure, you can make the model more complex by adding the extra interest of earning an additional $Y early in your career whether or not you can leverage fraud to be promoted, but you still end up with an equation in which being finned and* removed from your position is rarely worth it if: a) the probability of being caught is high, b) the fine is in the ballpark of the damages (Y+\epsilon due to moral damages and legal fees) and c) being found out comes with an extra-legal reputation cost.

Also, at the levels we are talking about here, is money anything more than a proxy for ego/reputation? Would you rather have $10 million and be well regarded or $40 million and infamous?

>If you want to think like an economist about fraud

You don't.

Thinking like an economist about control fraud is the exact mistake Alan Greenspan made when he denied that fraud could exist because an efficient market wouldn't allow it:


His fatal assumption was also that reputational risk was enough to prevent it from ever happening.

The question is, does punishment really work as a deterrent in this case? Assume that the penalty for fraud were lifetime prison or even death, but it only ever got applied to 0.1% of the people committing it. I don't think that would deter anyone. But a realistic chance (maybe even 10%) of losing your wealth, career and reputation would. Maybe even that is not needed, and you can build enough transparency into the system that violating trust (game theoretic defecting) becomes worthless compared to other options.

My point is, punishment for the sake of punishment is not in our interest. And sure, there is some value in creating a deterrent, but usually there are better ways to set incentives than just coming up with the meanest scariest deterrent you can think of and having that hanging over people's heads.

Wells Fargo made about $2.5m from the fraudulent accounts, and Stumpf had $40m+ of compensation clawed back.

Were those $40M used to pay back the victims of the fraudulent accounts, reimburse them for the stress, money and time spent fighting those charges and used to restore their creditworthiness, plus to fund the government and press groups involved in uncovering and fixing this mess? If so, I actually see it as a pretty reasonable outcome[1], specially given he is also not in charge there anymore.

[1] well... modulo the fact that his compensation sounds surprisingly high to begin with, but that's between him and his stockholders.

I Couldn't read the article because of paywall. Is there any news on Carrie Tolstedt the woman who oversaw the unit that created all the fraudulent accounts and gets to retire in July at age 56 with a $124 million pay package? This in addition to the $9 million dollar she took home last year.


He's still not actually being punished. He lost his job. Big deal; he's got a golden parachute. He's not going to go through any of the stress that any of the people he fired for this went through when they lost their jobs. He's not getting fined, he's not going to jail. The worst thing that happened to him is he got a tongue lashing from Warren.

Honestly I still don't understand why this organization continues to exist. Banks are chartered by the government for the purpose of safeguarding deposits. This bank was engaged in fraud on a huge scale. Their charter should be terminated.

Fraud against themselves mostly.

I think you'll find all the major retail banks had policies very similar to Wells Fargo. Wells Fargo was certainly the tall poppy, but I have friends who have worked there and at other similar banks in a retail banker role - they didn't think anything abnormal of the sales pressure at WF, just noted it was a bit more intense than what they were used to and actually generally found WF to be better to work for than the other majors.

I would even go so far as to argue the vast majority of consumer service sales operates under such unsustainable models as well, which encourage if not outright imply fraud. Ask any retail cellular employee and they'll be able to tell you stories that sound identical to Wells Fargo. Cramming is the default state of the game, since "corporate" will always continue to ratchet up sales quotas until they are unachievable for most moral people.

I think I'm mostly surprised anyone cares, it's been going on for a decade plus and this sort of stuff is an open secret among retail sales in many industries. Why is it only now being reported? Why is only Wells Fargo being singled out?

I don't oppose your solution. I'm just curious who Wells pissed off or didn't pay off, that the other banks apparently did.

How did you conclude that Wells Fargo itself is the victim? Nobody has even tried to add up all the fees they charged their account holders on these phantom accounts.

Too big to fail. 2008 wasn't that long ago, remember? If the big banks go down, a lot of politicians lose a lot of money.

It doesn't have to fail. Its administration can be taken over by a purpose-built entity (or the army corps of engineers, who cares really) and all sales and marketing can be halted while everything is liquidated in an orderly fashion.

They should be broken up

So, your solution is to liquidate a bank that controls 2 T$, employs 265,000 persons and has over 200 B$ in shareholder value? Don't get me wrong, this fraud affected a lot of people but ultimately liquidating the whole thing will have a negative effect multiple orders of magnitude greater.

Whatever. Will he get a nine-figure golden parachute like the other senior exec who just left? If not, this does not impress me. Will any of his earnings and bonuses be clawed back? If not, this does not impress me. What about the other execs responsible?

> Will any of his earnings and bonuses be clawed back?

They already have clawed back a lot of his bonus


I did notice that story, but that's only impressive if they don't entirely cancel out the effect by giving him a gigantic golden parachute, which, tragically, would be the expected behavior here.

This situation is exactly what the gold in golden parachutes are for.

> Mr. Stumpf won’t receive a severance package, the bank said

They're fighting back. The structure of the CFPB (Consumer Financial Protection Bureau, which fined Wells Fargo for this) was declared unconstitutional yesterday [1].

[1] http://www.wsj.com/articles/federal-appeals-court-finds-stru...

Only in a relatively minor way though. The ruling states the President can remove the head at will, rather than requiring cause. American Banker actually had an editorial about this being bad for banks--it decreases the predictability of the agency. It does make it easier for a compromised President to favor a bank-friendly director though. They only need one to gut it now.

With or without a golden parachute, he will still be wealthier than the total net worth of everyone I know, and won't risk prison.

> What about the other execs responsible?

Well, one of them is in charge now, so...

It will be a massive golden parachute. No doubt.

"Financial details of Stumpf's retirement plan are unknown, but Equilar estimates he walks with $134.1 million from retirement. The package remains that large even after Stumpf last month agreed to a $41 million clawback following a grilling he received from the Senate Banking Committee reprimanding him for not taking responsibility. He agreed to give up unvested stock, but still owns shares vested in previous years.[0]"

[0]: http://www.usatoday.com/story/money/markets/2016/10/12/wells...

He only gets to walk away with $90 million. That will send a clear signal to the other execs to not encourage fraud. /s.

How do you "give up" unvested stock?

Get fired or quit before it vests. (Conditional on your contract.)

Edit: If you are a C-level executive, your contract may stipulate that you get unvested stock, even if you're fired. It's possible that John Strumpf chose not to exercise any such clause, but I strongly doubt it. The man is a psychopath.

Right, but that seems like it's being extremely deceptive: when you quit or get fired you stop vesting.

It isn't clawed back in any meaningful way. When you or I leave a startup, we don't talk about our unvested options getting "clawed back".

> when you quit or get fired you stop vesting

Generally true, but sometimes there is vesting acceleration upon termination [1]. (I have no idea how much it's used in the banking world; just that it exists.)

[1]: http://venturehacks.com/articles/acceleration-termination

Don't let big goals overshadow small accomplishments.

Hopefully this sends a message to others. I believe this is at least a step in the right direction.

What's the message? "You're rarely caught, if you are caught all you need to worry about is a fine you can pass along to consumers, and personally? You'll be richer than god at the end of it all anyway."

This is symbolic crap, in a system that needs to be reformed from the ground up.

I'm surprised no individuals at the executive level have been charged with crimes, to be honest. Or perhaps it's simply too soon and that's the next shoe to drop.

It takes a shockingly long time to get to the point where you can file criminal charges. IANAL (but I did go to law school) but you need time to, at minimum, decide which charges to file (and ensure there are no jurisdictional issues), where to file them, talk to witnesses, file requests for documentation, etc. On top of all that, if you don't dot your i's and cross your t's perfectly, a judge could dismiss the case.

It takes time, effort, and care to build a strong case against a senior executive. Not something that can be done overnight.

Definitely. That's why we're going on, what, almost ten years since the collapse with barely any real repercussions for any senior financiers in the county!

We've just gotta be more patient... It'll happen.

And sometimes there are no senior executives who did anything clearly identifiable as criminal under the laws at the time. Just because something terrible happened doesn't mean it's provably criminal and the fault of particular people.

It does take a while. I don't think anyone was prosecuted for the Great Depression until about 10 years later, IIRC.

Surprised, he says

The USA Today headline is better: "Wells Fargo CEO Stumpf retires with $134M"

Let me just link to Matt Levine's take: https://www.bloomberg.com/view/articles/2016-09-09/wells-far....

TL/DR: The bank probably didn't benefit on net from the fraud, even before the fines. This is more a case of management setting unreasonable sales goals and creating a terrible work environment than a conspiracy to commit fraud against bank customers.

I thought the point was that it benefited Strumpf's pocket by falsely inflating share value, not necessarily the bank.

Did you read @Smerity's top comment above?

What is not mentioned in the very thin article is that this scumbag who ruined many people's lives gets to walk-away with $134 Million [1].

[1] http://www.usatoday.com/story/money/markets/2016/10/12/wells...

Yet if a common man had committed any of the fraud - they would be very likely in jail.

I worked at Wells Fargo back in 2003. The emphasis on product bundling predates Stumpf and was attributed to Kovacevich when I worked there, and they were very proud of its effectiveness on the bank's bottom line. The unwanted accounts shenanigans were well in play when I started. I recall having to call branches to report this stuff and have accounts closed(phone bankers had some status back then at least, though I'm sure the branch managers ignored my whistle blowing).

You might think sales doesn't have much to do with customer service(phone bankers) right? Wrong. Every customer contact was considered a sales opportunity. The primary goal of every call was not helping the customer, it was refering a product and getting them on the line with a sales rep for "more information"(cause who doesn't want more information?!). From memory our major KPI's were close rate, referrals, and call time. You pretty much needed to refer a product on most calls to hit your numbers, regardless of whether the customer actually needed/would benefit from it. That covers referral rate, but they tighten the close rate and referral rate screws separately on you.

The goals they set were hard and getting harder at the time, but obtainable without gaming if you had no shame. Oh, gaming. Gaming was manipulating the system in any way. Opening accounts without proper customer consent was gaming. Other forms of gaming did not amount to fraud. Gaming was rife.

My best friend at the time, and still long time friend to this day, worked in the phone bank as customer service for about a year before making it to the sales team down stairs. Sales was a bit better from what I understand; we both had nightmares about customer service. After he graduated from college he was promoted to Sales Manager. He informs me that, depressingly, some of the same managers are there to this day. While he was there a few of the managers including himself were on the lookout for gaming, the rest I hear were actively for whatever was necessary to meet team numbers. I doubt even the highest person at the center gave a shit; whatever it took to appear to be hitting the numbers C-Levels set to get those bonuses.

My friend tells me he probably would have put a bullet in his head if he had not gotten out of there.

P.S. I'm still a Wells Fargo customer and recent events will not change that.

Just curious--why do you still remain a customer of Wells Fargo?

Better the devil you know.

I just got a robocall painting the CFPB as anti-consumer and a waste of tax dollars.

Just Four Months Ago, New Wells Fargo Chief Said No Changes in Sales Strategy [1]. Meet the new boss, just like the old boss.

[1] https://theintercept.com/2016/10/12/just-four-months-ago-new...

Bravo to the directors for waking up. Any time there's a long-serving CEO of a big public company, it's as if the directors have been chloroformed. They generally show no ability to question the boss, let along hold him/her accountable for anything.

Most of the other boards that should be waking up ... probably won't. But at least they've got a reminder that it's possible.

He's also chairman of the board. Not sure if he's relinquishing that role.

I'm pretty sure he is. Though NYT doesn't quite say so directly.


I watched a lot of his testimony before the Financial Services Committee on CSPAN. So I am unsurprised. He took a fairly savage beating.

For some reason, the fact that Wells Fargo is a really big enterprise cut no ice with the various Congresscritters.

FWIW, I am not a "break up the banks" guy[1] mainly because of things written and said in podcasts by Charles Calomiris, author of "Fragile By Design" along with Stephen H. Haber. It is all more nuanced and complicated than that, and the small bank lobby in the US really is a thing and a thing that has caused problems.

[1] Canada has very close to only one bank and has had no financial crises to speak of.

" He took a fairly savage beating."

He got a tongue lashing. He still has not faced any real consequences for what he did.

"For some reason, the fact that Wells Fargo is a really big enterprise cut no ice with the various Congresscritters."

Why would that excuse any of it? He's paid ungodly sums of money to be in charge of the company, and be responsible for it. If he can't handle it, then he does not deserve that money.

It's far more than a tongue lashing. Look, this is how these folks assemble footage to run on and such. One New York pol ( Meeks? ) called WF a criminal enterprise.

I didn't say it would excuse anything. He's responsible. There were bad actors within WF. Some people ( presumably there's correlation between that and who was a bad actor ) were fired. I don't mean the people who were fired under the compensation structure.

This might take a while. They have 265,000 employees. If it's O(n) and each case takes thirty man-minutes, that's 66.25 man-years.

I don't know any other context than the congressional hearings. But this appears to be a sacrificial resignation.

"Ungodly sums of money" is quite the (non) standard. I hold that the cultural failings and biases that cause us to cause the existence of these behemoths are still with us.

Why are we still talking about compensation policy? Can't we figure out how to pay people? This is clearly a case of gamification of a variable compensation policy.

What's behind that "Can't we figure out how to pay people?" Isn't that what's at issue in general? Isn't that what drives the debate over inequality? There's Something Wrong. With us.

"It's far more than a tongue lashing."

Until he has the shit kicked out of him in a jail cell, it isn't. As I said before, Stumpf is not facing any real consequences for his actions.

I'm a bit out of date - the top three ( of the Big Five ) still dominate, though:


RBC was biggest by quite a margin and for a long time.

I would expect no less. Given the size of the issue, it's virtually impossible that he didn't know about it. I'm assuming competency here, as he was leading one of the largest banks in the world.

My perception is that WF took a big turn for the worse ethics-wise when they merged with Norwest in Minneapolis. Never heard a negative word about them until that time.

nitpick: Norwest actually purchased WF outright, but then adopted their name and branding.

Did it include a "brain transplant?" I thought that was the case but went to look it up and couldn't find any details.

he directed and benefited from massively organized criminal activity - it looks like a RICO case, isn't it?

Do you know what RICO stands for? It doesn't fit here.

why it is so hard for people to use Google? I mean it is right there https://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corru... :

" Under the law, the meaning of racketeering activity is set out at 18 U.S.C. § 1961. As currently amended it includes:


Any act of ... theft, embezzlement, fraud, ...


Or do you really wanna argue that there wasn't a criminal "enterprise" as defined by RICO? I hope you aren't seriously considering to argue absence of the "pattern of the racketeering activity" here - that would be laughable.

>Do you know what RICO stands for? It doesn't fit here.

So, why would you say that RICO doesn't fit here? Or may be you just didn't know what RICO stands for?

The apology didn't work and clients started demanding accountability. I am glad this happened.

That's a win? No Jail?

The title should be: "Stumpf gets with $134M"


Meta: Looks like WSJ is smart enough now to detect the `web` links. I went directly to the site, hit paywall, backed out. Then went via the `web` link, same paywall. Went to `web` link in incognito, was able to read the (fairly anemic) article.

I would prefer an HN 'rule' that denies the listing of any articles that originate from paywall sites.

So a rule that denies listing articles from publications that regularly produce interesting stuff? That's the definition of cutting off your nose to spite your face.

This same article is on 20 sites. No reason to pay wall it.

In this case, fair point. Not all pay walled articles meet this criteria. Many do not.

Yeah, I've had to do incognito on the WSJ web links for a while now.

Seems like a cookie they set for your browser. Normal practice.

Try the "Paywall Bypass" Chrome extension.

Interesting, the web link worked for me.

it's hit or miss, but I rarely have to do incognito for WSJ

I think they cookie you on the direct link hit, so going back and doing the web link doesn't work without incognito (IME).

I get the paywall, even in incognito across all browsers. They must also be tracking by IP.

Fascinating. I work at a large WeWork (hundreds of people, ~9 floors of a 12 story building in manhattan). I wonder if I'm silently benefitting from WSJ subscribers who work out of there causing our ips to be whitelisted for uncookied, google-referred views.

Do you do most of your browsing from home?

Is he being prosecuted?

Nothing will change until we show that white collar crime is still crime.


We detached this subthread from https://news.ycombinator.com/item?id=12696763 and marked it off-topic.

Being downvoted is usually temporary (random noise, until the upvoters a arrive). Comments complaining about being downvoted - which, note, are against site guidelines usually last longer. Don't write them.

> Please resist commenting about being downvoted. It never does any good, and it makes boring reading.

You're right. I apologize.

Headline tomorrow, "John Stumpf Steps appointed chairman of the board of Wells Fargo."

Shit's about to go down.

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