Wells Fargo former chief fined record high for role in sales scandal

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Wells Fargo former chief fined record high for role in sales scandal
Pedestrians pass in front of a Wells Fargo & Co. bank branch at night in New York. Photographer: Craig Warga/Bloomberg

Wells Fargo former Chief executive officer John Stumpf hit with record high fine $17.5m for his role in fake sales scandal.

John Stumpf was fined with seven other former executives at the fourth-largest US bank over fake customer accounts.

Wells Fargo & Co’s United States regulator on Thursday announced it had banned former Chief Executive John Stumpf from the banking industry and charged him and seven other former executives combined more than $58m in civil penalties for their roles in the bank’s multiyear sales practices scandal.

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“The actions announced by the Office of the Comptroller of the Currency today reinforce the agency’s expectations that management and employees of national banks and federal savings associations provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations,” Comptroller of the Currency Joseph Otting said in a statement.

The action by the Office of the Comptroller of the Currency (OCC) marks a rare example of senior executives being held personally accountable for failing to put a stop to misconduct at their bank.

It also broke new ground for the regulator, which forced Stumpf to pay $17.5m to settle the charges against him the largest ever penalty it has secured from an individual.

The OCC’s inquiry is one of several into the San Francisco-based lender, with investigations by the Department of Justice and the Securities and Exchange Commission continuing.

One person with knowledge of the OCC investigation said it was far-reaching and that more individuals could be charged.

“We do not expect these penalties will end Wells Fargo’s troubles in Washington.Yet this is still a positive development for Wells Fargo as this was a hurdle that the bank was always going to have to clear,” said Jaret Seiberg, an analyst at Cowen Washington Research Group, in a note.

Some of the OCC’s findings, though, contradict Wells Fargo’s 2017 board report into the scandal, which largely pinned the blame on a small number of executives, in particular, the bank’s former retail banking head Carrie Tolstedt. But on Thursday, the OCC said many members of the bank’s senior leadership were culpable, a finding that is likely to prompt further questions by legislators who may push for criminal convictions, said Seiberg.

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In addition to Stumpf, former human resources head Hope Hardison and Michael Loughlin, former chief risk officer, settled the OCC’s charges for $2.25m and $1.25m, respectively, the OCC said.

Stumpf, who could not immediately be reached for comment, also agreed to a lifetime ban on working for an OCC-regulated bank. He abruptly left the company in October 2016 after nearly 10 years at the helm.

Five other former executives refused to settle, including Tolstedt who is facing a potential $25m civil monetary penalty, James Strother, the former general counsel, and Claudia Russ Anderson, the former community bank group risk officer, who face $5m fine each.

Wells Fargo former chief fined record high for role in sales scandal :File Photo

They and two auditing executives may ultimately fight the charges before a judge under the OCC’s administrative process.

“Throughout her career, Ms Tolstedt acted with the utmost integrity and concern for doing the right thing. A full and fair examination of the facts will vindicate Carrie,” a lawyer for Tolstedt said in a statement.

In a statement, Strother’s lawyer said the former Wells Fargo executive “acted with the utmost integrity and transparency” and that the OCC’s charges are “false and unfounded”.

Russ Anderson could not immediately be reached for comment.

In a memo to Wells Fargo employees, CEO Charles Scharf said the company was reviewing Thursday’s filings and will determine what, if any, further action is appropriate in respect to any of the individuals who were named.

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The memo added that the bank would not make any remaining compensation payments that may be owed to those individuals in the meantime.

Wells Fargo, the country’s fourth-largest US lender, has paid out more than $4bn in fines and penalties since the 2016 revelation that the bank’s sales practices encouraged employees to open potentially millions of unauthorised bank accounts in order to hit lofty sales targets.

Since then, internal and external investigations have uncovered issues in each of Wells Fargo’s significant business lines, including wealth management and the commercial bank.

The fallout has also resulted in the US Federal Reserve imposing an unprecedented growth restriction on Wells Fargo’s balance sheet until it proves it has fixed its risk management and controls.

While Wells Fargo has signed multiple federal and private settlements for its sales practices, the OCC action marks the first federal action against individuals for their roles in the scandal, instead of just the institution.

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In its complaint, the OCC said senior bank leadership must have been aware of rampant sales misconduct, citing large numbers of employee complaints and years’ worth of other evidence. For example, an internal investigation conducted by the bank in 2004 found that instances in which staff “gamed” the sales system to meet targets climbed 979 percent from 2000 to 2004.

The number of calls to the bank’s internal ethics hotline steadily climbed from 2006 through 2014, the OCC said, with nearly half of all cases investigated related to sales misconduct.

Wells Fargo former chief banned from banking after role in sales scandal.