On January 23, 2020 the Office of the Comptroller of the Currency (OCC) announced settlements with fiver former executives of Wells Fargo bank. More than four years ago it was discovered that Wells Fargo engaged in a pattern and practice of systemic sales practice violations occurring between 2002 – 2016.

The announcement by the OCC stated that certain executives, all members of Wells Fargo’s operating committee, “failed to perform their duties” that contributed to the bank’s failures. Within the 100-page Notice filed by the OCC it states, “Respondents in the Community Bank, the Law Department, and Audit failed to take actions consistent with their respective responsibilities to identify, correct, and/or escalate the sales practices misconduct problem.”

The following table was displayed on the OCC website:

Name Former Position Held Relief Sought
Carrie Tolstedt Head of the Community Bank Prohibition Order and $25,000,000 Civil Money Penalty (CMP)
James Strother General Counsel Personal Cease & Desist (PC&D) Order and $5,000,000 CMP
Paul McLinko Executive Audit Director PC&D Order and $500,000 CMP
Claudia Russ Anderson Community Bank Group Risk Officer Prohibition Order and $5,000,000 CMP
David Julian Chief Auditor PC&D Order and $2,000,000 CMP

In addition to the executives cited above former bank Chairman and CEO John Stumpf was issued a Civil Monetary Penalty (CMP) of $17,500,000 and a consent of prohibition, former  Administrative Officer and Director of Corporate Human Resources Hope Hardison received a cease and desist order as well as a CMP of $2,250,000 and former Chief Risk Officer Michael Loughlin received a personal cease and desist order and assessment of a $1,250,000 CMP.

The key issues, in my view, were the incentive structure, the compensation scheme and the relentless pressure put on staff to meet impossible sales goals. Another theme that seems to be consistently present in matters such as these is that those with oversight accountabilities were made aware of the problems but did nothing or did not take adequate steps to remedy the problem. The Notice alleges, “None of the Respondents ever escalated the 14-year sales practices misconduct problem to the Board or the OCC.”

One of the more damning allegations made in the Notice related to Ms. Tolstedt. “From no later than 2002 through 2016, Respondent Tolstedt knew that the Community Bank’s business model incentivized illegal sales practices misconduct.” Which led to this: “During Respondent Tolstedt’s sworn testimony before the OCC, she asserted her Fifth Amendment right against self-incrimination and refused to answer all substantive questions, including those related to the allegations in this Article.”

This case seems to get very close to the stated objectives of the “Yates Memo” – Individual Accountability for Corporate Wrongdoing. All personnel with corporate oversight accountability should familiarize themselves with the Yates Memo. See here: https://www.justice.gov/archives/dag/file/769036/download

Pursuant to federal law, the respondents may request a hearing challenging the allegations and relief sought by the OCC.

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