Banking and Finance Law Daily OCC announces actions, consent order involving former Wells Fargo employees
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Friday, January 24, 2020

OCC announces actions, consent order involving former Wells Fargo employees

By Colleen M. Svelnis, J.D.

OCC announces actions against five former employees of Wells Fargo in Sioux Falls, S.D., and consent orders with three additional former employees for their part in sales practices misconduct.

The Office of the Comptroller of the Currency announced its intention to initiate prohibition and civil money penalty proceedings against five former executives of Wells Fargo Bank, N.A., located in Sioux Falls, S.D. In addition, the comptroller announced settlements with the bank’s former Chief Executive Officer and other members of the bank’s operating committee. The OCC alleges that the former employees engaged in "sales practices misconduct," referring to the practices of bank employees issuing a product or service to a customer without the customer’s consent, transferring customer funds without the customer’s consent, or obtaining a customer’s consent by making false or misleading representations. Comptroller of the Currency Joseph Otting stated "The actions announced by the OCC today reinforce the agency’s expectations that management and employees of national banks and federal savings associations provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations."

The OCC issued notice of charges against the following individuals who served as senior executives for the bank: Carrie Tolstedt, Head of the Community Bank; Claudia Russ Anderson, Community Bank Group Risk Officer; James Strother, former General Counsel; David Julian, former Chief Auditor; and Paul McLinko, former Executive Audit Director. The comptroller assessed orders of prohibition and a Civil Money Penalties against Tolstedt and Anderson, while personal cease and desist orders and civil money penalties were assessed against Strother, Julian, and McLinko.

According to the OCC, the root cause of the sales practices misconduct problem was the community bank’s business model, which imposed intentionally unreasonable sales goals and unreasonable pressure on its employees to meet those goals and fostered an atmosphere that perpetuated improper and illegal conduct.

According to the notice of charges, Community Bank management intimidated and badgered employees to meet unattainable sales goals year after year, including by monitoring employees daily or hourly and reporting their sales performance to their managers, subjecting employees to hazing-like abuse, and threatening to terminate and actually terminating employees for failure to meet the goals.

The OCC’s notice of charges included possible Order of Prohibition and $25 million civil money penalty charges for Tolstedt; Order of Prohibition and civil money penalty of $5 million for Anderson; a personal cease and desist order and $5 million civil money penalty for Strother; a personal cease and desist order and $2 million civil money penalty for Julian; and a personal cease and desist order and $500,000 civil money penalty for McLinko.

Consent Orders issued. John Stumpf, Former Chairman and Chief Executive Officer and head of the community bank, agreed to the issuance of a Consent Order, including an order of prohibition along with a civil money penalty of $17.5 million. According to the Consent Order, Stumpf voluntarily forfeited all of his invested equity awards, valued at approximately $41 million, and his 2016 bonus and salary. Additionally, the OCC stated in the Consent Order that Wells Fargo caused Stumpf to return incentive compensation valued at approximately $28 million, effectuated in part through the bank’s non-payment of his retirement funds, reflecting a total of approximately $70 million in equity-related forfeitures, bonus, and salary. Hope Hardison, former Chief Administrative Officer and Human Resources Director agreed to a Consent Order including an order to Cease and Deist as well as a civil money penalty in the amount of $2.25 million. Additionally, Michael Loughlin, former Chief Risk Officer, agreed to a Consent Order with the OCC that included a $1.25 million civil money penalty along with an order to cease and desist.

2016 action. A 2016 enforcement action by the OCC required Well Fargo to pay a $35 million civil money penalty and restitution to customers who were harmed by the bank’s unsafe or unsound sales practices. In assessing the civil money penalty, the OCC noted the bank’s failure to develop and implement an effective enterprise risk management program to detect and prevent the unsafe or unsound sales practices, and the scope and duration of the practices. Under a separate Cease and Desist Order, Wells Fargo was required to take steps to correct deficiencies in the bank’s risk management and oversight of the bank’s sales practices (see Banking and Finance Law Daily, Sept. 8, 2016).

Wells Fargo response. Wells Fargo CEO and President Charlie Scharf sent a message to all its employees in response to the OCC actions. "The OCC’s actions are consistent with my belief that we should hold ourselves and individuals accountable. They also are consistent with our belief that significant parts of the operating model of our Community Bank were flawed. At the time of the sales practices issues, the Company did not have in place the appropriate people, structure, processes, controls, or culture to prevent the inappropriate conduct."

Companies: Wells Fargo Bank, NA

MainStory: TopStory BankingOperations DoddFrankAct EnforcementActions SouthDakotaNews UDAAP

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