The Securities and Exchange Commission has charged two former top executives at Wells Fargo with misleading investors about the bank’s financial performance — the latest chapter in the endless saga of regulators trying to hold Wells Fargo folks accountable for the bank’s disastrously bad behavior. 

The SEC charged John Stumpf, who had been CEO of Wells from 2007 until he was fired in 2016; he agreed to settle the charges with a $2.5 million penalty but does not have to admit any guilt in the case. Also charged was Carrie Tolstedt, who had been head of Wells Fargo’s community banking division from 2007 until 2016. That was the division responsible for Wells Fargo’s most egregious misconduct: creating fake accounts for customers without those customers’ knowledge or permission.

Tolstedt

These latest charges, announced Friday morning, accuse Stumpf and Tolstedt of making false statements to investors about the success of Wells Fargo’s operations. They also say Stumpf made false certifications about the accuracy of Wells Fargo’s financial statements. That’s a violation of the Sarbanes-Oxley Act, and one the SEC almost never enforces. The agency also charged Tolstedt with making false sub-certifications about her division, which were then used to support Stumpf’s bogus certifications.

So these charges are all about violations of investor protection law. Not to be confused with charges brought by the Office of the Comptroller of the Currency against Stumpf and Tolstedt (and others) in January, accusing them of violating banking laws. Stumpf settled those charges too, accepting a $17.5 million penalty and a ban from the banking industry.

Wells Fargo itself, meanwhile, paid $3 billion in February to the Justice Department and the SEC to settle corporate charges. Not to be confused with the $185 million it paid to the Consumer Financial Protection Bureau in 2016, or the billions and billions the bank has paid to outside consultants over the years to fix its flawed processes. 

You get the idea. Total mess. Exorbitant costs. In other words, business as usual for Wells Fargo these days.

The Misconduct Itself

The SEC complaint centers on disclosures Stumpf and Tolstedt made to investors in the mid-2010s. At the time, the bank measured its performance using something called the “cross-sell metric” — the number of banking products sold per customer. That metric originated in the late 1990s, when Wells Fargo and other large banks began offering a more diversified product line to customers.

Stumpf

The problem: Stumpf and other bank executives first set a high quota for employees to meet that cross-sell metric; selling eight products per day, when the industry norm was closer to four. Then they also created a high-pressure culture that inexorably drove employees to lie about sales performance so they could keep their jobs. The result was the fake-account scandal, which became a full crisis by the mid-2010s.

Except, Stumpf and others were still touting the cross-sell metric as reliable proof that Wells Fargo was doing great, when they knew full well that the cross-sell metric had led to widespread employee misconduct and it wasn’t reliable at all. 

For example, in August 2015, Wells Fargo published its second-quarter report and said the cross-sell metric for the bank’s retail customers “was 6.13 products per household in May 2015, compared with 6.17 in May 2014.” The report also said, “For Community Banking, the cross-sell metric represents the relationship of all retail products used by customers in retail banking households.”

But if the products assigned to customers weren’t real, then the customers weren’t using them. In many cases, customers didn’t even know they had those products until the bank started hitting them with maintenance fees. 

And Stumpf, Tolstedt, and others knew that, the SEC says, because by mid-2015, they had been firing employees for fake-account misconduct by the thousands for years. Yet still, the executive was certifying in the financial statements that everything was hunky dory, and saying the same to investors in public presentations. 

A Word on Accountability

As we said, the SEC rarely uses its enforcement actions under SOX to whack an executive for falsely certifying financial results. Clearly this was meant to be some stab at holding Stumpf accountable for such a gigantic mess. 

On the other hand… really? The SEC wouldn’t even insist that Stumpf admit the agency’s findings? I can appreciate that a $2.5 million penalty isn’t fun, and OCC already hit Stump for another $17.5 million, and the man is never going to work in banking again, and Wells itself clawed back $28 million from Stumpf in 2017.  

Still, for someone who had been a titan of U.S. banking for so long, coughing up $48 million to various parties is not onerous. He can afford it. The SEC missed an opportunity here to send a message that people must also admit their guilt in misconduct, or else take their chance at trial. 

Sure, that message is only symbolic and even a bit corny — but symbolic messages can soothe the soul of investors burned by the powerful, with no other recourse to hold them accountable. Sigh.

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