knew-all-alongYou know it is going to be a very bad day when, as a company’s Chief Executive Officer (CEO), you receive a letter asking the following, “Specifically, the committee should thoroughly examine this issue, including: How it is possible that more than 5,000 employees could bilk customers over the course of five years; the timing, extent and disposition of customer complaints; whether Wells Fargo’s sales and compensation structure incentivized employees to engage in deceptive and abusive practices; and what additional safeguards may be needed to prevent this type of behavior.”

That language came out of a letter from Senate Banking Committee Chairman, Richard Shelby, and was quoted in a New York Times (NYT) Dealb%k column by Andrew Ross Sorkin, entitled “The Brazen Sham No One Noticed”. To Senator Shelby’s questions, Sorkin added a rather obvious one “What, exactly does a risk manager at Wells Fargo do?” For myself, one of the most basic questions was simply how could some 2 million fraudulent accounts, involving both products and services, be opened and no one notice?

It turns out that the problem for Wells Fargo is not that no one noticed that sales representatives had been fraudulently cross-selling for years. The greater problem for the bank was that it was well known within the organization for years and it was never stopped. In a Wall Street Journal (WSJ) article by Emily Glazer, entitled “Wells Fargo Tripped By Its Sales Culture”, she noted, “Questionable sales tactics persisted, though, and were an open secret in Wells Fargo branches across the country.” She wrote that the bank began asking questions internally about “an uptick in bad behavior” as far back as 2009 when sales spiked during one month’s Jump into January sales program. She noted, “For five years, Wells Fargo conducted investigations into improper practices, hired consultants and tinkered with sales and compensation incentives.”

Surveys, Assessments and Internal Investigations

In 2010 “employee-satisfaction surveys done for Wells Fargo by research firm Q & A Research Inc. showed that some bank employees felt uncomfortable about what managers had asked them to do or when pushing customers to buy products.” In 2012, the “Wells Fargo’s community-banking unit assembled a special task force to look for suspicious patterns in sales practices and examine areas of the U.S. where customer complaints were prevalent, such as Southern California, according to current and former bank executives.”

There was an assessment in 2013 after some 200 Wells Fargo employees were fired for fraudulent practices around cross-selling. After some directors and executives wondered if the real problem was the bank’s cross-selling culture and not the terminated employees; it was determined that it was simply ‘rogue employees’. An anonymous source for the WSJ piece said, ““When we first started looking at it, we didn’t think it was anything other than rogue junior players and a few rogue managers””. Even with this finding, the bank’s risk management team “increased its oversight and audit capabilities” over the community banking unit.

In 2015, the bank hired Accenture and the venerable law firm Skadden, Arps, Slate, Meagher & Flom “to conduct an internal investigation”. The Board was regularly briefed on the investigation’s progress. As a direct result from this internal investigation “the bank lowered some sales goals and toughened new procedures to ensure that new accounts were legitimate.” After the Los Angeles District Attorney “alleged that Wells Fargo pressured retail employees to commit fraud”, the bank “hired consulting firm PricewaterhouseCoopers to do an in-depth analysis. About a dozen PwC employees worked on the project for about a year, discovering fraudulent sales practices that were prominent in Phoenix, Miami and Newark, N.J.”

Compliance and Ethics Training

Then there was compliance and ethics training. In another NYT Dealb%k column by Michael Corkery and Stacy Cowley, entitled “Warned About Excesses, Then Prodded to Sell”, they wrote, “The message to the dozens of Wells Fargo workers gathered for a two-day ethics workshop in San Diego in mid-2014 was loud and clear: Do not create fake bank accounts in the name of unsuspecting clients. Similar warnings were being relayed from corporate headquarters in San Francisco to regional bankers in Texas, as senior management learned that some Wells employees had been trying to meet exacting sales goals by creating sham bank accounts and credit cards instead of making legitimate sales.”

How seriously was the training taken? In her WSJ piece, Glazer reported the following, “At a sales meeting in Florida in 2014, Wells Fargo & Co. regional executives scolded lower-level managers about an obvious problem that kept cropping up at the bank. Managers were told that their employees should never open accounts for people who don’t exist, people familiar with the meeting recall. One manager in the room saw things differently. In an email peppered with exclamation points and capital letters, she urged her employees to ignore the bosses and get sales up at any cost, says someone who saw the email.”

Internal Reporting of Illegal Activity

Instances where Wells Fargo employees attempted to speak up about unethical or even illegal behavior were met with indifference or outright hostility. Khalid Taha, a former employee was quoted “They warned us about this type of behavior and said, ‘You must report it’ but the reality was people had to meet their goals.” Another former employee, Ruth Landaverde was quoted in the WSJ piece as saying, “If somebody said: ‘This doesn’t make sense. Where are you getting these sales goals?’ then [the response] was: ‘No, you can do it’ or ‘You’re negative’ or ‘Oh, you’re not a team player’. She says she often got the same response whenever she said a customer didn’t need another credit card. “The answer was: ‘Yes, they do,’” she says. She quit after being warned she wasn’t reaching her sales goals, she says.”

It does appear that the CEO was made aware of the illegal conduct at Wells Fargo. One Wells Fargo employee reported the unethical conduct in an email directly to CEO Stumpf. As reported from the Senate Banking Committee hearing, in an exchange between Stumpf and Senator Robert Menendez, who read an email that he said was written in 2011 by a Wells Fargo employee reporting concerns about cross-selling pressure directly to the CEO. Mr. Stumpf said “I don’t remember that one.” Mr. Menendez replied: “Well, she was fired.” Yet, in his testimony CEO Stumpf said he was made aware of the problem in 2013 and the Board was informed in 2014.

External Reporting of Unethical Conduct

Of course, the real losers in all this illegal and unethical activity were the banks customers, who received the unwanted and, in some cases, unknown services and products. Yet these same customers also reported the actions to the bank and nothing came out of this information. Corkley and Cowley reported one former Wells Fargo employee who, “fielded complaints from customers about questionable accounts until shortly before he left the bank this summer. He said bank managers had grown weary of writing up reports on potentially improper sales.” He said that it was “like jaywalking,” and “hard to police.” Other customers interviewed for the piece spoke about the difficulties in cancelling credit and debit cards they “didn’t know about and didn’t want.”

Some questions not yet answered

If every customer was contacted to obtain or use up to eight product or services, one might wonder about credit risk? Sorkin did when he listed several questions posed to him by Richard Bove a research analyst. The questions included, “What does this indicate about the bank’s underwriting policies? Can anyone have a Wells credit card without any checks being made concerning that person’s ability to make payments for debt created using this card?” And what does this say about the information the company has reported to investors and regulators? The bank also apparently opened 1.5 million false transaction accounts? Does this mean that accounts can be opened with no balances? What does it say about the willingness of the bank to operate with accounts on which it makes no money? What policies and procedures at this bank allowed this to occur?””

So, in spite of all the investigations, auditing, assessments, internal and external reporting how could Wells Fargo have allowed this problem to grow? Perhaps the most concise answer came from Glazer who, in another WSJ piece, entitled “On the Way to ‘Great,’  Six Products Per Customer”, wrote that in the bank’s 2010 annual report, CEO Stumpf “said he often was asked why Wells Fargo had set a cross-selling goal of eight [products and services per customer]. The answer is, it rhymed with ‘great’ he wrote. “Perhaps our new cheer should be ‘Let’s go again, for ten!’”


This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at

© Thomas R. Fox, 2016