Wells Fargo Fallout Impacts Its Board of Directors
The company announced it will recover $75 million from corrupt execs. But board members may still face federal disciplinary actions.
Wells Fargo’s board of directors announced this week that it would claw back $75 million in compensations from a pair of former execs (one, its former CEO) that it determined were all-but-complicit in company’s years-long sales scandal.
This internal ruling, which spanned six months, comes four years after the Los Angeles Times broke the story that, due to a “pressure-cooker sales culture,” employees were leveraging customer profiles without their consent. Workers, particularly in Arizona and California, opened as many as 2.1 million bank accounts for, and assigned new credit cards to, unsuspecting customers.
Roughly 5,300 employees were fired in wake of the scandal. And the onus has trickled up to board members — because there were several warning signs.
“Despite plenty of warnings about its magnitude,” the Los Angeles Times recently wrote in a critique of the investigation, the board took too long to investigate. CNN Money cites an internal Wells Fargo investigation from as early as 2004, in which employees stated that they couldn’t “make sales goals without gaming the system.”
Board members were tipped off to high-risk sales practices in 2015, but did nothing. Even without executive cooperation, they could’ve stopped these transgressions by ruling to implement an insider-threat-detecting platform. For instance, a cyber-hunting tool would pinpoint high-risk activities.
During the scam, an egregious number of friends and family members were listed as prospects. According to Reuters, “One branch manager had a teenage daughter with 24 accounts, an adult daughter with 18 accounts, a husband with 21 accounts, a brother with 14 accounts, and a father with 4 accounts.” Analytics-based security could have spotted the rapid, odd coincidence of that, too.
Additionally, a disturbing number of customers did not deposit money into their purported new accounts. Machine learning would’ve granted the board members eyes-everywhere coverage, swiftly surfacing those anomalies, providing immediate forensics to stop the crime and prosecute guilty parties. Instead, these insider threats have persisted for more than a decade.
The New York Times reports that Wall Street-regulation group, Better Markets, denounced Wells Fargo’s “too-little, too-late cosmetic actions,” and suggested they oust all its board members during the company’s annual meeting on April 25. The advisory firm Institutional Shareholder Services Inc., meanwhile, recommended investors should vote for only three of the company’s 15 directors.
Wells Fargo has already doled out $110 million in a consumer settlement and $185 million towards federal regulations and the Los Angeles city attorney’s office. But the scandal has also tangibly impacted its financial growth, in comparison to competitors (see Bloomberg’s graph, above).
Last year, a pair of public flagellations — in which former CEO John Stumpf was grilled by both the Senate Banking Committee and the House Financial Services Committee — resulted in an SEC probe. Additionally, the U.S. Department of Labor is investigating claims that the bank retaliated against employees who took issue with the illegal practices.
Combined, this governmental intervention has forced the company to increase its litigation allocation to $1.7 billion. It’s clear, even to Wells Fargo, that the financial aftermath of this insider-threat scandal is going to be a long and windy road.