Wells Fargo orders two former executives to pay back $75 million

Wells Fargo is ordering two top former executives to return another $75 million in pay after a sweeping six-month investigation found they encouraged an aggressive sales culture and failed to take action or realize the widespread scope of the ensuing fraudulent behavior.

Former CEO John Stumpf, who left the bank in October, will pay an additional $28 million, while the former head of community banking, Carrie Tolstedt, will return $47 million in stock options on top of the $19 million she agreed to pay back after stepping down last year, according to a report by the Wells board of directors.

Stumpf had already agreed to return $41 million in pay after it was revealed that he failed to stem the tide of a pervasive business culture that put pressure on employees to meet aggressive sales goals and led many to open unauthorized accounts.

The scathing 110-page internal report, compiled by the law firm Shearman & Sterling, concluded that the “cause of sales practice failures was the distortion of the community bank’s sales culture and performance management system, which, when combined with aggressive sales management, created pressure on employees to sell unwanted or unneeded products to customers and, in some cases, to open unauthorized accounts.” 

{mosads}The bank’s corporate structure gave too much power to the community bank’s senior leadership, who the report concluded were “unwilling to change the sales model or even recognize it as the root cause of the problem.”

“Community bank leadership resisted and impeded outside scrutiny or oversight and, when forced to report, minimized the scale and nature of the problem,” the report said.

The report included interviews with 100 current and former employees and the examination of 35 million documents into the long-simmering problems at the bank that executives failed to confront despite clear and mounting evidence of a widespread problem.

To maintain the sales model, management exerted “significant and in some cases extreme, pressure on employees to meet or exceed their goals” and were worried about losing their jobs if they didn’t meet those levels, the report said. 

The report noted that both Stumpf and Tolstedt ignored the growing problems and deflected criticism about the San Francisco-based bank’s questionable practices. 

Tolstedt and her senior leaders “paid insufficient regard to the substantial risk to Wells Fargo’s brand and reputation from improper and unethical sales practices even as they failed to recognize the potential for financial or other harm to customers,” the report said. 

“Tolstedt and certain of her inner circle were insular and defensive and did not like to be challenged or hear negative information.”

The aggressive sales culture dated back at least 15 years, much longer than previously thought, the report said. In 2002, Stumpf knew about a problem in Colorado where employees were terminated for issuing debit cards without customer consent.

“The former chief executive officer, relying on Wells Fargo’s decades of success with cross-sell and positive customer and employee survey results, was too slow to investigate or critically challenge sales practices in the community bank,” the report said.

“He also failed to appreciate the seriousness of the problem and the substantial reputational risk to Wells Fargo.”

Last year, the Consumer Financial Protection Bureau (CFPB) fined Wells Fargo $185 million, including a $100 million penalty the bank will pay to the CFPB’s civil penalty fund — the largest fine ever levied by the regulator.

Revelations about the problem led to congressional hearings and additional lawsuits and investigations for the bank, including a $110 million class-action lawsuit.

The report acknowledged that since the scandal hit, the bank has taken steps to improve its practices and culture, including eliminating sales goals and reorganizing its structure within the community bank.

“While we have already made significant progress in making things right with customers and addressing issues, including several issues identified in the investigation, the board’s comprehensive findings provide another important opportunity to learn from our mistakes and take action to improve the way we operate, serve customers, and lead our team members,” said Wells Fargo CEO and President Tim Sloan.

“The board’s report is a necessary examination of what went wrong in our culture, operations, and governance,” Sloan said.