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 ...
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.
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 , 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.
 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 whole new way to think about startup acquisitions!
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.
Vanity metrics aren't just for tech firms!
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 was Wells's interest in doing this?
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.
That sounds like the High Tech Employees Lawsuit case, but a much easier win for a more sympathetic class of victim.
Every time she tries to get a job anywhere, that form will be checked by her potential employer?
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.
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.
It does, but can you really see a 'jury of peers' sympathizing with Wells Fargo in these circumstances?
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.
> "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.
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.
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.
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.
Subsequent firms have committed far worse offenses.
(though I have no idea how one would go about that and it's probably too risky)
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.
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.
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.
Of course, a drug dealer with a square reader plugged into his iPhone would happen first in SF.
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?
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!
You can see the form here: https://www.finra.org/sites/default/files/form-u5.pdf
You don't think that's a teency bit mellowdramatic? That description seems perfect for Bernie Madoff, Enron, et al.
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.
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.
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.
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.
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".
"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.
> 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.
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
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%"
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.
Meanwhile, she prodded pretty heavily in those congressional hearings...
"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."
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.
Nothing personal against Senator Warren, I assume this is de rigeur for Senate hearings.
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
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".
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.
This is why someone who runs a charity scam should be punished more than someone who simply mugs people.
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?
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.
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.
 well... modulo the fact that his compensation sounds surprisingly high to begin with, but that's between him and his stockholders.
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.
Read that then form an opinion.
They already have clawed back a lot of his bonus
Well, one of them is in charge now, so...
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.
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".
Generally true, but sometimes there is vesting acceleration upon termination . (I have no idea how much it's used in the banking world; just that it exists.)
Hopefully this sends a message to others. I believe this is at least a step in the right direction.
This is symbolic crap, in a system that needs to be reformed from the ground up.
We've just gotta be more patient... It'll happen.
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.
Yet if a common man had committed any of the fraud - they would be very likely in jail.
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.
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.
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 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.
 Canada has very close to only one bank and has had no financial crises to speak of.
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.
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
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.
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.
RBC was biggest by quite a margin and for a long time.
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?
Do you do most of your browsing from home?
Nothing will change until we show that white collar crime is still crime.
> Please resist commenting about being downvoted. It never does any good, and it makes boring reading.