Stumpf agrees not to work in industry again, is fined $17.5
million over fake accounts
By Rachel Louise Ensign and Ben Eisen
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 24, 2020).
A regulator barred former Wells Fargo & Co. chief executive
John Stumpf from the banking industry and fined him $17.5 million
over the firm's fake-accounts scandal, an extraordinary sanction
for a top executive at a large bank.
Mr. Stumpf agreed to the lifetime ban in a settlement with the
Office of the Comptroller of the Currency. The firm's former chief
administrative officer and chief risk officer settled similar civil
charges, and five other former executives, including the former
consumer-bank chief, were also charged.
The sanctions against Mr. Stumpf are noteworthy because few top
bank executives have faced penalties of this scale in recent years.
Banks paid tens of billions of dollars in fines for conduct during
the financial crisis, but enforcement efforts drew criticism from
some observers because of a lack of charges against
individuals.
For much of Mr. Stumpf's tenure, Wells Fargo was seen as a
folksy industry darling that had escaped the financial crisis
largely unscathed. But that reputation was left in tatters after it
became public that an aggressive sales culture led employees to
open millions of possibly fake accounts.
A lifetime ban on a CEO of a big bank is unprecedented in the
megabank era that started in the 1990s. One of the few similar
punishments was when the Securities and Exchange Commission in 2010
barred former Countrywide Financial Corp. CEO Angelo Mozilo from
ever serving as an officer or director of a publicly traded
company.
The OCC said Thursday that Mr. Stumpf "was or should have been
aware of the problem and its root cause," and that "there was a
culture in the Community Bank that resulted in systemic violations
of laws and regulations."
Employees submitted many complaints about pervasive pressure and
illegal sales activity to Mr. Stumpf's office, but he didn't
respond to them, the agency said.
One employee wrote to the CEO's office in 2013: "I was in the
1991 Gulf War.... This is sad and hard for me to say, but I had
less stress in the 1991 Gulf War than working for Wells Fargo."
The OCC's actions also show a flexing of regulatory muscle at an
agency that hasn't always been known for throwing its weight
around.
Since the scandal, though, the regulator has turned up the
pressure on Wells Fargo. Officials last year debated whether to
force out top bank executives, The Wall Street Journal reported at
the time, and Mr. Stumpf's successor stepped down soon after.
The fake-accounts scandal came into public view when the OCC,
the Consumer Financial Protection Bureau and the Los Angeles City
Attorney's office sanctioned Wells Fargo in September 2016.
Mr. Stumpf, who spent more than three decades at the bank, was
hauled before Congress and sparred with Sen. Elizabeth Warren, a
Massachusetts Democrat who called for him to resign. He did shortly
afterward. He also forfeited about $70 million in pay.
Top executives underestimated the ire the fake accounts would
provoke among customers, regulators and lawmakers. Criticizing the
bank became a bipartisan effort. For instance, President Trump, a
Republican, targeted Wells Fargo in a tweet in 2017, pledging to
punish the bank despite his administration's broader push to ease
financial regulations.
Wells Fargo's board said in a 2017 investigation that in the
years before the issues became public, Mr. Stumpf moved too slowly
to address the fake accounts. But the report also said
"responsibility most surely does not lie with John Stumpf alone,"
and pinned much of the blame on other executives like former
consumer-bank head Carrie Tolstedt.
The OCC has previously said that some of its own employees also
fell down on the job of catching the sales problems at Wells
Fargo.
The OCC on Thursday also settled charges against Wells Fargo's
former chief administrative officer Hope Hardison and former chief
risk officer Michael Loughlin. They paid a combined $3.5
million.
Attorneys for Mr. Stumpf and Ms. Hardison declined to comment.
Mr. Loughlin couldn't be reached for comment.
The regulator also charged five other former executives,
including the bank's former general counsel, former chief auditor
and Ms. Tolstedt, who ran the consumer bank when many of the fake
accounts were opened. Those cases are slated to play out in
administrative proceedings. The agency is seeking $25 million from
Ms. Tolstedt and a lifetime ban from banking. Ms. Tolstedt has
already forfeited $66 million of pay.
An attorney for Ms. Tolstedt said "throughout her career, Ms.
Tolstedt acted with the utmost integrity and concern for doing the
right thing. A full and fair examination of the facts will
vindicate Carrie."
Since the fake-accounts scandal became public, serious problems
have cropped up in the bank's other business lines, including
foreign exchange and wealth management, and the lender has
struggled with falling revenue. The Federal Reserve took the rare
step of capping the bank's growth in February 2018, citing
risk-management deficiencies.
Tim Sloan, another company veteran who succeeded Mr. Stumpf as
CEO, stepped down last March. It took months for the board to name
his replacement, Bank of New York Mellon Corp. CEO Charles
Scharf.
In an earnings call last week, Mr. Scharf said regulatory
problems were his priority. "Since joining, I've been spending
almost all of my time on these issues," he told analysts. In a
Thursday note to employees, Mr. Scharf said the company "will not
make any remaining compensation payments that may be owed to these
individuals while we review the filings."
The bank's shares have fallen about 3% since the day it was
fined for the fake accounts, missing out on a broader bank rally
that pushed the KBW Nasdaq Bank Index up 52%. It reported annual
revenue of $85.06 billion last year, down almost 4% from 2016.
Wells Fargo has also said it started discussions to settle a
joint Justice Department and Securities and Exchange Commission
probe into the fake-accounts scandal.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com and Ben
Eisen at ben.eisen@wsj.com
(END) Dow Jones Newswires
January 24, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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