Wells Fargo lawyers focused on managing risks rather than possible illegal pattern, report says
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Wells Fargo’s legal department failed to appreciate the seriousness of high-pressure sales goals that led to the creation of unauthorized customer accounts, according to a report released on Monday by the bank’s independent board members.
According to the report, Wells Fargo’s law department focused on potential legal costs related to the problem without looking at the broader picture.
“The law department’s focus was principally on quantifiable monetary costs—damages, fines, penalties, restitution,” the report said. “Confident those costs would be relatively modest, the law department did not appreciate that sales integrity issues reflected a systemic breakdown in Wells Fargo’s culture and values, and an ongoing failure to correct the widespread breaches of trust in the misuse of customers’ personal data and financial information.”
Wells Fargo has fired 5,300 employees in connection with the unauthorized accounts, and agreed to pay $185 million to settle federal claims. Its general counsel, James Strother, has been replaced.
The report also criticized the bank’s decentralized structure that allowed the problem to go unnoticed and pointed a finger at two executives, former CEO John Stumpf and former retail banking leader Carrie Tolstedt, report the New York Times, the Wall Street Journal (sub. req.) and the Washington Post.
Wells Fargo said it will claw back an additional $28 million from Stumpf and an additional $47 million in stock options from Tolstedt. Stumpf already had agreed to give up $41 million in compensation, and Tolstedt had agreed to give up $19 million.
The report said department heads such as Tolstedt were given power to run their divisions with little oversight. She saw her unit as a sales organization and took insufficient action when problems came to light, the report alleged. Stumpf had a commitment to the sales culture and minimized problems with it, the report said.
Lawyers for the law department who dealt with firings related to sales integrity issues realized around 2011 that sales pressure was causing problems, but they underestimated the need to more directly confront the issues, according to the report. The report commended lawyers in the department, however, for working on various committees in “commendable attempts” to address sales misconduct.
Lawyers in the enterprise sales division warned the board in 2014 that sales practices carried a “noteworthy risk,” the report said. But the accompanying discussion “did not highlight or identify the potential consequences of the misconduct that were distinctly legal in nature—e.g., a cascade of civil litigation, regulatory action from a host of federal and state agencies, and the resulting serious harm to Wells Fargo’s reputation,” according to the report.
The report also faulted “senior levels” within the law department. “The law department, particularly at its senior levels, did not discuss or appreciate the seriousness and scale of sales practice issues within the Community Bank [run by Tolstedt] or fully consider whether there might be a pattern of illegal conduct involved,” the report said. “Rather, the department’s focus was on advising on discrete legal problems as they arose and on managing Wells Fargo’s exposure to specific litigation risks.”