The Wells Fargo “Staff Scam”: More questions and fewer answers
Since I wrote about the astonishing Wells Fargo fraud, I have been waiting for additional news to shed some light on what happened – and didn’t happen.
By ‘didn’t happen’, I am referring to the actions that should have taken place to detect the frauds, identify their causes, stop further fraud, and report all of this to the board.
I am not talking about 2016, I am talking about 2011, 2012, 2013, 2014, and 2015.
But, the news has been scarce and little has been revealed.
….Except for interviews with Wells Fargo’s CEO John Stumpf, discussed in a Huffington Post article entitled Wells Fargo CEO Blames Multimillion-Dollar Fraud On The Lowest-Level Employees.
Let’s examine the few facts we know:
- He does blame some number of rogue employees.
- He does say that the 5,300 employees that were fired included “some” branch managers and a number of “managers of managers”.
- He says that neither his nor any other “named person’s” compensation (as I understand it that would include the CEO, CFO, and other highly-compensated individuals) was based on the number of accounts opened.
- As far as we know, no senior executive has been disciplined.
- He has not acknowledged any wrongdoing, even blindness, on his part or by any other senior executive. In fact, he presents an optimistic figure that should be retained to lead the company forward.
- Under gentle pressure from his friend Cramer in the Mad Money interview, Stumpf acknowledged that he was accountable – but showed no remorse to my eyes. He apologized but was clearly coached – as were many of his answers to Cramer’s questions about holding senior managers to account.
On balance, maybe it is a fair headline. You will decide for yourself.
The Mad Money interview revealed one disturbing ‘fact’.
Stumpf said that the 5,300 employees were fired over a period of 5 years – a rate of about 1,000 each year.
He is not saying that the 1,000 per year was an average with 100 in the first year and thousands towards the end of the five year period. (Apparently, the fraudulent activity was first discovered in 2011.) He implies that the number was about the same each year for 5 years.
He told Cramer that the branch system has about 100,000 employees, so only 1% were involved – as if that was acceptable and even predictable.
So we have to understand that for five years there was a steady stream of 1,000 being fired each year.
We know nothing about those who were subject to less stringent discipline – and of course nothing about anybody who was not found out or where the manager looked the other way.
Given this new information, I have more questions:
- If about 1,000 people were fired in 2011 for their fraudulent activities, opening accounts for customers that they had not authorized, why wasn’t action taken in 2011 to prevent this fraudulent activity continuing?
- If another 1,000 were discovered in 2012 and then in 2013, who did nothing? What about 2014 and 2015?
- Who discovered the frauds, when, and what did they do? Neither Wells Fargo nor the regulators (in the Consent Decree) have identified a whistleblower, internal audit action, or other source.
- When was this reported to the Compliance Officer, senior and executive management, the board, and internal audit? Were the risk officers ever informed?
- Was there a concentration of these frauds in a particular region or was it widespread?
- Who should have known? Are they being held to account?
- Who should have been watching? Are they being held to account?
- What happened when a customer complained?
- Did anybody check customer signatures?
- Is there a culture of not coming forward?
- Who set these targets, knowing that many if not most new accounts did not involve ‘new money’, but were funded by transfers from existing accounts? Since they did not influence income, they seem to be silly targets. Wells is refunding just $2.6 million in fees – which is probably less than all the bonuses awarded for opening the 2 million unauthorized accounts.
Internal audit is referenced in the CFPB Consent Decree, but only in a requirement to perform an audit to confirm agreed-upon actions have been taken.
There is no indication that internal audit did in the past or would in the future look at:
- The setting of compensation targets (for example to confirm they will drive desired behavior and are consistent with the achievement of corporate goals, not just that they deter undesirable behavior as referenced by the regulator)
- The culture of the organization, how whistleblowers are treated and whether employees are willing to come forward
- The design and operation of controls over the opening of customer accounts
- The design and operation of controls around customer complaints, for example to identify trends
We still know very little.
All we can do is hope the board is asking these and other questions – and being more skeptical than Cramer in his interview!!!