Carrie Tolstedt, former Wells Fargo Community Banking Head, Agrees to Plead Guilty and Pay a $17 Million Fine for Obstruction of Regulator’s Investigation
If there ever is an example of a rotten corporate culture, Wells Fargo sits at the head of the class. Since Wells Fargo’s sales pressure scandal, Wells Fargo has continued to suffer from a string of scandals and misconduct. Along the way, and notwithstanding spending millions on lawyers, consultants, accountants and other professionals to fix its culture and controls, Wells Fargo still has not recovered.
Just recently, after years of criminal and civil investigations focused on the aggressive sales scandal, DOJ announced that Carrie Tolstedt, the head of the sales incentives scandal, had agreed to plead guilty to one count of obstructing the Office of the Comptroller of Currency (“OCC”) investigation into Wells Fargo’s misconduct, and to pay a $17 million fine. Under the plea agreement, Tolstedt faces a potential sentence of between 10 to 16 months’ imprisonment.
In a parallel announcement, Tolstedt resolved an OCC enforcement action against her in exchange for payment of a $17 million fine. She also agreed to a bar against participation in the banking industry.
In 2020, Wells Fargo settled with the Justice Department, the SEC and regulators for $3 Billion to resolve criminal and civil liability stemming from its sales practice misconduct scandal stretching from 2002 to 2016.
Wells Fargo’s misconduct involved pressuring employees to meet unrealistic sales goals that caused employees to provide millions of accounts and products (e.g. credit card) to customers under false pretenses or without consent by creating false records or misusing customers’ identities. As a result, Wells Fargo collected millions of dollars in fees and interest to which Wells Fargo was not entitled, harmed the credit ratings of certain customers, and misused customers’ sensitive personal information, including customers’ means of identification.
Carrie Tolstedt, the head of Wells Fargo’s Community Bank Division, and other senior executives were aware of the impact that its sales incentives program was having but were committed to continuing the profitable practices. Wells Fargo increased its focus on sales volume and reliance on annual sales growth, with an emphasis on its “cross-sell strategy” to sell existing customers additional financial products. Wells Fargo’s Community Bank implemented a volume-based sales model in which employees were directed and pressured to sell large volumes of products to existing customers, without regard to actual customer need to expected use. The Community Bank leadership placed extraordinary pressure on thousands of employees which led them to engage in unlawful conduct, including fraud, identity theft and falsification of bank records.
Wells Fargo referred to these practices as “gaming,” which varied widely but included using customers’ identities without their consent to open checking, savings, debit card, credit card, bill pay and global remittance accounts. From 2002 to 2016, gaming practices included forging customer signatures to open accounts, creating PINs to activate unauthorized debit cards, moving money from millions of customer accounts to unauthorized accounts, opening credit cards and bill pay products, altering customers’ true contact information and prevent Wells Fargo employees from reaching customers to conduct customer satisfaction surveys.
According to the factual statement accompanying the plea agreement, Tolstedt was aware of sales practices misconduct within the Community Bank and the fact that employees were terminated each year for gaming. By no later than 2006, Tolstedt was learning about the gaming practices from corporate investigations and, over time, learned that terminations for gaming in the Community Bank were steadily increasing, that the misconduct was linked in part to sales goals within the Community Bank, and that termination numbers likely underestimated the scope of the problem.
In May 2015, Tolstedt assisted in the preparation of a memorandum for the OCC relating to the OCC’s examination of sales practice issues at Wells Fargo. To minimize the scope of the sales practices misconduct within the Community Bank, Tolstedt corruptly obstructed the OCC’s examination by failing to disclose statistics on the number of employees who were terminated or resigned pending investigation for sales practices misconduct. She also failed to disclose that the Community Bank proactively investigated only a very small percentage of employees who engaged in activity flagged as potential sales practices misconduct.
Tolstedt is expected to appear in court in Los Angeles to enter her guilty plea on April 7, 2023.