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OCC Settles Penalty Action with Former Wells Fargo CEO for $17.5 Million and Issues Penalty Notices Against Five Former Wells Fargo Officials

The Office of the Comptroller of Currency (OCC) announced a $17.5 million settlement with former Wells Fargo Bank CEO John Stumpf’s role in the sales practices misconduct scandal.  In addition, the OCC announced settlements with two other Wells Fargo officials: (1) Hope Hardison, former Chief Administrative Officer and Director of Human Resources, Cease and Desist Order and $2.25 million civil money penalty; and (2) Michael Loughlin, Chief Risk Officer, Cease and Desist Order and $1.25 million civil money order.

Former CEO Stumpf’s settlement included a lifetime ban on participation in the banking industry. (Here).

In addition to the specific settlements, the OCC initiated penalty notices against five former Wells Fargo officials (here):

(1) Carrie Tolstedt, Head of the Community Bank, Prohibition Order and $25 million civil money penalty;

(2) Claudia Russ Anderson, Community Bank Group Risk Officer, Prohibition Order and $5 million civil money penalty;

(3) James Strother, General Counsel, Personal Cease and Desist Order and $5 million civil money penalty;

(4) David Julian, Chief Auditor, PC&D Order and $2 million civil money penalty; and

(5) Paul McLinko, Executive Audit Director, PC&D Order and $500,000 civil money penalty.

The facts outlined by the OCC in the enforcement actions paint a damning picture of misconduct.  As outlined by the OCC, from 2002 to October 2016, Wells Fargo’s Community Bank’s retail branch network had a systemic sales misconduct problem which was rooted in a business model that imposed unreasonable sales goals on its sales employees along with unreasonable pressure to meet those goals.  The OCC also explained that the Community Bank’s controls were ineffective and were not reasonably designed to detect or prevent the misconduct.

The Community Bank’s business model was highly profitable primarily because it resulted in a greater number of legitimate sales without the unreasonable sales goals and sales pressure.  The business model also resulted in revenue from the sale of unauthorized products and services issued to customers.  The Community Bank’s controls were designed and maintained to favor profits over taking action to reduce instances of illegal conduct that was pervasive throughout the Community Bank.

Under former CEO Stumpf’s leadership, the Community Bank’s culture resulted in systemic violations, breaches of fiduciary duties and unsound practices by employees.  Stumpf failed to adequately supervise the Head of the Community Bank with respect to the bank’s sales practices, and never challenged the fundamentally flawed business model.  Stumpf never fully examined the sales goals, the impact of the sales goals and the potential for sales practices misconduct.

The OCC also noted numerous “warning signs” that Stumpf ignored, including team member complaints submitted directly to his office, fear of termination for not meeting unreasonable sales goals and illegal and unethical sales activities.  Also, Stumpf was frequently informed by Community bank leaders, as well as leaders in the Risk, Human Resources, Audit and Legal functions that the sales practices issues were the result of isolated instances of individual employee misconduct, not systemic conduct, and that the controls were operating effectively.  Stumpf failed to verify that these representations were accurate.

Equally troubling, Stumpf failed to hold Carrie Tolstedt, Head of Community Banking, accountable for the systemic sales misconduct, even after a 2013 Los Angeles Times article exposed the controversial sales practices misconduct, after the City Attorney of Los Angeles filed a lawsuit in May 2015, and the OCC issued five notices in June 2015 focusing on the sales practices misconduct.

The OCC noted that Stumpf acknowledged the systematic sales practices misconduct, and that he voluntarily forfeited $70 million in equity-related forfeitures and bonus and salary.

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