Wells Fargo

Scandal
Compiled and presented By: M.Hashim,
Muneeb Tariq, Hamza Arif and Sher
Khan.
Whats is Wells Fargo?

❏ Wells Fargo & Company is an American multinational financial services company with corporate headquarters in San Francisco,
California, operational headquarters in Manhattan,and managerial offices throughout the United States and internationally.
❏ The company has operations in 35 countries with over 70 million customers globally.It is considered a systemically important
financial institution by the Financial Stability Board.
❏ The firm's primary subsidiary is Wells Fargo Bank, N.A., a national bank chartered in Wilmington, Delaware which designates
its main office in Sioux Falls, South Dakota. It is the fourth largest bank in the United States by total assets and is one of the
largest as ranked by bank deposits and market capitalization.
❏ Along with JPMorgan Chase, Bank of America, and Citigroup, Wells Fargo is one of the "Big Four Banks" of the United States.
It has 8,050 branches and 13,000 ATMs. It is one of the most valuable bank brands.
❏ Wells Fargo in its present form is a result of a merger between the original Wells Fargo & Company and Minneapolis-based
Norwest Corporation in 1998.
❏ While Norwest was the nominal survivor, the merged company took the better-known Wells Fargo name and moved to Wells
Fargo's hub in San Francisco, while its banking subsidiary merged with Wells Fargo's Sioux Falls-based banking subsidiary.
With the 2008 acquisition of Charlotte-based Wachovia, Wells Fargo became a coast-to-coast bank.
Why did we chose Wells Fargo?
Resson # 1 Resson # 2 Resson # 3

Wells Fargo has become It is by far the most Wells Fargo is a shining
synonymous with the documented company example of how
name scandal, as it has due to the many marketing and social
become the company allegations placed against media can help a
with by far the most it. The data can be company hide the many
scandals in the 21st collected from many third unethical practices and
century. party agencies and firms. illegal conduct.
 Wells Fargo 2016
Fake Account
scandal
What happens when the people can even expect
the banks which house their lives saving to be
faithful to their customers.
Is this the future of the capitalist economy we live
in, an unethical and misleading system shrouded
and protected by the veil of law.
 Sacramento sues over Wells Fargo among advisors
discrimination against black sanctioned by SEC for fee-
The fake account scandal and Latino borrowers disclosure practices

September 2016 March 2017 February 2018 August 2018 March 2019

Flunked community Wells Fargo pays $2.1

lending test billion for its role in
housing bubble
 max growth

Initial impact of the

fraud
Fraud

● Employees were encouraged to order credit cards for pre-approved customers without their consent, and to use their own contact
information when filling out requests to prevent customers from discovering the fraud. Employees also created fraudulent
checking and savings accounts, a process that sometimes involved the movement of money out of legitimate accounts. The
creation of these additional products was made possible in part through a process known as "pinning". By setting the client's PIN
to "0000", bankers were able to control client accounts and were able to enroll them in programs such as online banking.
● Measures taken by employees to satisfy quotas included the enrollment of the homeless in fee-accruing financial
products.Reports of unreachable goals and inappropriate conduct by employees to supervisors did not result in changes to
expectations.
● After the Los Angeles Times article, the bank made nominal efforts to reform the company's sales culture.Despite alleged
reforms, the bank was fined $185 million in early September 2016 due to the creation of some 1,534,280 unauthorized deposit
accounts and 565,433 credit-card accounts between 2011 and 2016. Later estimates, released in May 2017, placed the number of
fraudulent accounts at closer to a total of 3,500,000.
● In December 2016, it was revealed that employees of the bank also issued unwanted insurance policies.These included life
insurance policies by Prudential Financial and renters' insurance policies by Assurant.Three whistleblowers, Prudential
employees, brought the fraud to light. Prudential later fired these employees, and announced that it might seek damages from
Wells Fargo.
On Wells Fargo management

● The bank fired approximately 5300 employees between 2011 and 2016 as a result of fraudulent sales,and discontinued sales quotas at its individual
branches after the announcement of the fine in September 2016.John Shrewsberry, the bank's CFO, said the bank had invested $50 million to improve
oversight in individual branches. Stumpf accepted responsibility for the problems, but in September 2016, when the story broke, indicated he had no plans
to resign.
● Stumpf was subject to a hearing before the Senate Banking Committee on September 21, 2016, in an effort led by Senator Elizabeth Warren.Before the
hearing, Stumpf agreed to forgo $41 million in stock options that had not yet vested after being urged to do so by the company's board.Stumpf resigned on
October 12, roughly a month after the fines by the CFPB were announced, to be replaced by COO Timothy Sloan.Sloan indicated there had not been
internal pressure for Stumpf's resignation, and that he had chosen to do so after "...deciding that the best thing for Wells Fargo to move forward was
for him to retire...".In November 2016, the Office of the Comptroller of the Currency levied further penalties against the bank, removing provisions from
the September settlement.As a result of the OCC adding new restrictions, the bank received oversight similar to that used for troubled or insolvent
financial institutions.
● Stumpf received criticism for praising former head of retail banking, Carrie Tolstedt, upon her retirement earlier in 2016, given that the bank had been
conducting an investigation into retail banking practices for several years at the time.In April 2017, the bank utilized a clawback provision in Stumpf's
contract to take back $28 million of his earnings.Tolstedt was also forced to forfeit earnings, though she denied involvement.Tolstedt was responsible for
the pressure placed on middle management to dramatically increase the bank's "cross-sell ratio", a metric for how many accounts each customer had.
● The bank experienced decreased profitability in the first quarter after the news of the scandal broke.Payments to law firms and other external advisers
resulted in increased expenses.After earnings were reported in January 2017, the bank announced it would close over 400 of its approximately 6000
branches by the end of 2018.In May 2017, the bank announced that they would cut costs through investment in technology while decreasing reliance on
its “sales organization”.The bank also revised up its 2017 efficiency-ratio goal from 60 to 61
 Wells Fargo incurred additional costs due to refunds and
lawsuits:

● $6.1 million in customer refunds due to

inappropriate fees and charges
● $142 million in customer compensation due to a
class-action settlement

Wells Fargo costs

● $480 million settlement for a shareholder class-
action lawsuit
● $575 million 50-state Attorneys General (AG)
settlement for a combination of opening
The CFPB fined Wells Fargo $100 million on September 8,
unauthorized accounts and charging for unnecessary
2016 for the "widespread illegal practice of secretly opening
unauthorized accounts." The order also required Wells Fargo to auto insurance and mortgage fees
pay an estimated $2.5 million in refunds to customers and hire
The December 2018 AG settlement announcement
an independent consultant to review its procedures.
indicated that Wells Fargo had already paid $2.3 billion in
settlements and consent orders, so its $575 million
settlement brought the total to nearly $3 billion.
On non-management Wells Fargo employees
● Wells Fargo employees described intense pressure, with expectations of sales as high as 20 products a day. Others described
frequent crying, levels of stress that led to vomiting, and severe panic attacks. At least one employee consumed hand sanitizer to
cope with the pressure. Some indicated that calls to the company's ethics hotline were met with either no reaction or resulted in
the termination of the employee making the call.
● During the period of the fraud, some Wells Fargo branch-level bankers encountered difficulty gaining employment at other
banks. Banks issue U5 documents to departing employees, a record of any misbehavior or unethical conduct. Wells Fargo issued
defamatory U5 documents to bankers who reported branch-level malfeasance, indicating that they had been complicit in the
creation of unwanted accounts, a practice that received media attention as early as 2011.There is no regulatory process to appeal
a defamatory U5, other than to file a lawsuit against the issuing corporation.
● Wells Fargo created a special internal group to rehire employees who had left the bank but were not implicated in the scandal. In
April 2017, Timothy Sloan stated that the bank would rehire some 1000 employees who had either been wrongfully terminated
or who had quit in protest of fraud. Sloan emphasized that those being rehired would not be those who had participated in the
creation of fake accounts. The announcement was made shortly after the news was released that the bank had clawed back
income from both Carrie Tolstedt and John Stumpf.
External Reaction and
Government
Investigation
Divestitures by major clients
● In September 2016, California suspended its relationship with the bank. John Chiang, the California State Treasurer,
immediately removed the bank as bookrunner on two municipal bond issuers, suspended investments in Wells Fargo, and
removed the bank as the state's broker dealer.
● Chiang cited the company's disregard for the well-being of Californians as the reason for the decision, and indicated the
suspension would last for a year.
● Chiang later extended these sanctions against the bank to last for a second year, citing the "... opaque manner with which
the bank continues to do business and the frequency of new disclosures of wanton greed and lack of institutional
control" as his reasons for doing so.
● The city of Chicago also divested $25 million invested with Wells Fargo in the same month as the actions taken by the state of
California. Additionally, Chicago alderman Edward M. Burke introduced a measure barring the city from doing business with
the bank for two years.
● Other cities and municipalities that have either replaced or sought to replace Wells Fargo include Philadelphia, which uses the
bank to process payroll, and the state of Illinois.
● Seattle also ended its relationship with the bank in an effort led by Kshama Sawant. In addition to the account controversy,
Seattle cited the company's support of the Dakota Access Pipeline as a reason to end its relationship.
Lawsuit by Navajo
Nation

● The Navajo Nation sued Wells

Fargo in December 2017.
● The lawsuit claims Wells Fargo
employees told elderly members of
the Navajo nation who did not
speak English that checks could
only be cashed if they had Wells
Fargo savings accounts.
● Wells Fargo was the only bank that
operated on a national scale with
operations with the Navajo Nation.
● Wells Fargo settled with the
Navajo Nation for $6.5 million in
August 2019.
First hearing
● John Stumpf appeared before the Senate Banking Committee on September 20, 2016. Stumpf delivered
prepared testimony and was then questioned. Senators, including Committee Chairman Richard Shelby,
asked about whether the bank would clawback income from executives and how the bank would help
consumers it harmed.
● Stumpf gave prepared testimony, but deferred from answering some of the questions, citing lack of expertise
concerning the legal ramifications of the fraud.
● Elizabeth Warren referred to Stumpf's leadership as "gutless" and told him he should resign.
● Patrick Toomey expressed doubt that the 5300 employees fired by Wells Fargo had acted independently and
without orders from supervisors or management.
● Stumpf was later replaced as CEO by Tim Sloan, and Warren has expressed apprehension about leadership so
closely associated with the period during which the fraud occurred.
● In October 2018, Warren urged the Fed Chairman to restrict any additional growth by Wells Fargo until
Sloan is replaced as CEO.
Other investigations
● Prosecutors including Preet Bharara in New York City, and others in San Francisco and North Carolina,
opened their own investigations into the fraud.
● The Securities and Exchange Commission opened its own investigation into the bank in November 2016.
● Maxine Waters, chair of the House Financial Services Committee, announced her intention to investigate the
bank further in early 2019.
● She previously released a report about the bank's malpractice, and had called for the government to dismantle
the bank.Former Wells Fargo Chairwoman Elizabeth “Betsy” Duke and James Quigley resigned on March 9,
2020 three days before House Committee on Financial Services hearings on the fraud scandal.
● The Department of Justice and the Securities and Exchange Commission reached a settlement with the bank
in February 2020 for a total fine of US$3 billion to address the bank's criminal and civil violations.
● However, this settlement does not cover any future litigation against any individual employee of the bank.
● In November 2020, the SEC filed civil charges against two former senior executives, Stumpf and Tolstead,
accusing them of misrepresentation to investors of key performance metrics.
From the media

● Wells Fargo survived the Great Recession more or less unharmed, even acquiring and rescuing
a failing bank, Wachovia,and the scandal tarnished the bank's reputation for relatively prudent
management when compared to other large banks.
● Politicians on both the left and the right, including Elizabeth Warren and Jeb Hensarling have
called for investigation beyond that done by the CFPB.
● Many reacted with surprise both to Stumpf's initial unwillingness to resign and the bank's
blaming the problem on lower-level employees.
● In a fall 2019 article, management professor William Tayler and doctoral student Michael
Harris analyzed the scandal as an example of the surrogation phenomenon.
Legacy at Wells Fargo
and long-term impact
Leadership implications
● Tim Sloan, who became CEO after
Stumpf, later resigned in March 2019
under pressure related to the scandal.
He was replaced by Charles Scharf, the
former CEO of both Visa and BNY
Mellon.
● Scharf was appointed with the
expectation that he would rehabilitate
the bank's reputation with regulators,
having previously overseen turnaround
efforts at BNY Mellon.
● As of October 2020, Scharf had not
introduced a comprehensive plan to
address the problems faced by the
bank;this plan, announced in January
2021, was received skeptically by
industry analysts.
● John Shrewsberry, CFO of the bank
since 2014, announced his retirement in
mid-2020. Mike Santomassimo, a
"lieutenant" of Scharf's from BNY,
replaced him.
Financial and business implications
● As of 2020, the ongoing regulatory scrutiny faced by Wells Fargo in response to the scandal continued to weigh on the bank's
performance.
● A growth cap, placed on Wells Fargo by the Federal Reserve, complemented by low interest rates, has made recovery difficult. To
reduce costs, executives under Scharf began reevaluating the bank's lines of business in an effort to trim or dispose of those outside its
core offerings. The first major implication of this refocus was the sale of the bank's student loan business in December 2020 to private
equity firms Apollo and Blackstone.
● As early as October 2020, Wells Fargo was reported to be pursuing a sale of its asset management business, hoping to sell the entire
division in a single transaction. Potential bidders for the asset management business include Minneapolis-based Ameriprise and
Canadian investment management firm CI Financial.
● To better address its issues with compliance after news of the fraud broke, Wells Fargo's management teams relied on external
consultants and law firms.Firms hired by the bank to oversee compliance initially included McKinsey and Promontory Financial
Group; these were later replaced by Oliver Wyman and PricewaterhouseCoopers.
● In mid-2020, CEO Charlie Scharf announced commitments to reducing the amount of authority conceded to these firms, in part to
trim spending on external counsel as high as $758 million a quarter. An employee, quoted in Financial Times, referred to the bank's
degree of reliance on consultants as "off the charts" and even "comical".
● The cuts to spending on consultants were announced at the same time as other cost-saving measures, chief among them layoffs.
Ethical Insight
● Wells Fargo has a fiduciary duty to treat its customers fairly.
● The bank offered many different services to its customers. But the bank’s management set unrealistically
high sales goals for its employees, encouraging many employees to game the system.
● If a customer bought one service, employees were urged to “cross-sell” several more. “Eight is great” was
the company mantra.
● The only way that Wells Fargo employees could meet their unrealistic sales targets, and thereby keep their
jobs, was to make up accounts that customers had not requested and often didn’t even know they were
being charged for.
● Employees fabricated millions of fraudulent accounts in order to keep their bosses happy and remain
employed.
● It was a classic conflict of interest.
Workplace culture
● It has been two years since Wells Fargo was embroiled in one of the biggest banking scandals in history. Under pressure to hit sales
targets it was revealed that staff had created millions of fake bank accounts in order to hit their goals. Despite huge fines, a
congressional mauling and public apologies, employees at the 166-year-old bank claim little has changed.
● Wells Fargo bank has been under a cloud since 2015 when it acknowledged that employees had opened millions of fake bank accounts
for customers to meet sales goals.
● “It doesn’t feel like they’ve changed much of anything, to be honest,” Meggan Halvorson, a Wells Fargo private mortgage
employee for six years, told the Guardian. “Things put in place don’t seem to be doing much of anything and we still hear complaints
from customers.”
● Since the scandal broke Wells Fargo has paid over $1.7bn in fines, $575m of that as late as December. Its executives have been grilled
by Congress and the bank has promised “a new day”.
● And yet frontline bank workers, many of whom felt scapegoated during the fraudulent account scandal, are still mistreated, according
to Halvorson. She said workers are still under intense pressure from middle management to get their bonuses, compensation lost from
the reduction of financial incentives hadn’t been replaced for frontline workers and sales teams still lean on workers to push through
deal closings as quickly as possible.
● “There’s no real respect for people’s work-life balance,” said Halvorson. “The overwhelming thing you hear from management
is: ‘Just be thankful you have a job.’”
 Conclusion
This scandal is a shining example on how the line between legality and ethics can be blurred, and
used for the benefit of corporations.

By analysis this we can understand the multiple facets of corporate and personal ethics and how
conflicts arise from them.
Thank you for your time and we
hope it was informative and
helpful