Recently, you may have seen news reports of the Wells Fargo financial fraud scandal. The bank is under public and federal scrutiny, with the Senate currently conducting an investigation. But what exactly did Wells Fargo do to owe millions in fines and potentially have their CEO imprisoned? In short, employees opened hundreds of thousands fake accounts and credit cards to customers without their knowledge or consent. These acts are serious cases of financial fraud. In an economy already distrustful of big banks, how did fraud this big go unnoticed, and how does it impact you?
How the Financial Fraud Occurred
The reason for the fraudulent acts is actually very simple: top level executives want more pay. Take CEO John Stumpf, for example. His salary as CEO is $2.8 million a year, but he also receives stock options and bonuses. These stocks and bonuses are dependent on how Wells Fargo performs as a company. The better Wells Fargo performs, the more pay Stumpf and fellow executives receive. From 2012-2015, Stumpf received $155 million of such bonuses, on top of his annual salary. From these numbers, it is easy to see why Stumpf and Wells Fargo executives like when the bank performs well. So they regularly encourage employees and branch managers to continually increase sales and revenues. But when unattainable sales targets are pushed, employees start committing fraud. Specifically, they opened 1.5 million fake accounts and applied for 565,000 credit cards to boost their revenues. The aggressive sales targets set by executives looking to increase pay were met by employees creating fake sales to keep their jobs.
After these dishonest practices were revealed in early September by the Senate Banking Committee, several major issues arose:
- How long has the fraud been occurring, and how long has Wells Fargo been aware of these practices?
- Should CEO Stumpf face criminal charges?
- How much does Wells Fargo owe its customers?
Since 2011, lawsuits have been filed against the bank for fraud from clients who noticed accounts they did not authorize. Wells Fargo has also been firing employees who committed the fraud, totaling 5,300 since 2011. This is problematic because it violates federal financial law. This fraud is a risk to investors and stock holders of Wells Fargo. If Wells Fargo knew about this risk previously, they are legally required to report it to the SEC immediately. This brings forth the second question: should CEO Stumpf respond for the fraud and the cover up? Several Senators have demanded his resignation along with financial penalties. Others requested a personal investigation conducted against him. The Consumer Financial Protection Bureau is currently questioning Stumpf to discover more about the fraud scandal.
While the question of criminal charges remains unanswered, Wells Fargo will pay a number of fines, including:
- $185 million for the illegal practices
- $2.6 million in refund fees for falsely charged customers
- CEO Stumpf will forgo his 2016 salary, and personally pay $41 million in fines
- $35 million to the Office of the Comptroller of the Currency (branch of the US treasury department that regulates banks)
- $50 to the County of Los Angeles (the LA city attorney assisted in reviewing the case)
How the Wells Fargo Fraud could Impact You
This case is notable because it reveals an unnerving question: are any other banks doing this? The performance-based bonus system is common for executive pay across the banking industry. This means that the same push for higher sales is present in other banks as well. This case is a big deal because fraudulent sales such as these contributed to the recession the country has only just recovered from. In fact, the issue of financial fraud is so dire that it has even caused political parties in the Senate to unite. For normal citizens, the implications of illegal actions such as these can be devastating. Ruined credit scores, lost stocks, and future loans could be more difficult to obtain. If you believe yourself to be a victim of the Wells Fargo fraud, or suspect yourself to have experienced financial fraud, you need an attorney who has the knowledge and experience to handle your case and save your finances. Contact the attorneys at www.lawyers24-7.com for a free consultation if you have been a victim of banking fraud.
About the Author Kiersten Klang is an Associate Legal Editor for www.lawyers24-7.com