For the second time in two weeks, John Stumpf, the long-time chief executive of Wells Fargo, entered into the halls of Congress to take a bipartisan beating from lawmakers over the bank’s role in a scandal involving the creation of hundreds of thousands of sham accounts to meet aggressive sales goals.
“Fraud is fraud and theft and is theft. What happened at Wells Fargo over the course of many years cannot be described any other way,” said Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee. Rep. Maxine Waters, D-Calif., called the case “some of the egregious fraud we have seen since the financial crisis.” Wells Fargo has turned into a “school for scoundrels,” said Rep. Carolyn Maloney, D-N.Y.
Stumpf has repeatedly apologized for those misdeeds and agreed earlier this week to forfeit $41 million in his own personal unvested stock and go without a 2016 bonus. “I am fully accountable for all unethical sales practices in our retail banking business, and I am fully committed to fixing this issue, strengthening our culture, and taking the necessary actions to restore our customers’ trust,” he told the House Financial Services Committee.
But the hearing quickly turned hostile as some lawmakers called for Stumpf to resign and questioned whether he should be criminally prosecuted.
“Why shouldn’t you be in jail?” Rep. Michael Capuano, D-Mass., asked. “When prosecutors get hold of you, you are going to have a lot of fun.”
“Do you think what you did was criminal?” Rep. David Scott, D-Georgia, asked. Stumpf responded that he had led the bank with “courage,” but was interrupted again.
Several lawmakers raised the prospect of calling executives from other banks to testify about their sales tactics, and the practice of cross selling–an effort to persuade customers to sign up for multiple products like a checking or savings accounts. Others called for a separate hearing to hear from former Wells Fargo workers, who were either fired for setting up unauthorized accounts or were fired for not meeting the company’s aggressive sales goals.
“These were people trying to make a living,” said Rep. Al Green, D-Texas. “These people deserve a fair day, not just an exit from your company. . . They deserve an opportunity to be heard.”
Stumpf was repeatedly questioned about when he, and others in the bank’s leadership, realized there was a problem. Hensarling noted the Federal Reserve had found the bank had weak internal controls in 2011 in its mortgage lending business. “If you saw the problem in one area of the business, why wouldn’t you do it for the other?,” he said.
For years, Stumpf has strived to separate Wells Fargo, one of the largest banks in the country, from the controversy that has typically dogged many of its biggest competitors. But now the San Francisco-based institution has become entangled in a controversy of its own after acknowledging that it fired 5,300 employees over five years for setting up unauthorized accounts customers didn’t request. In some cases, customers were charged fees for accounts they didn’t know they had or employees moved money from authorized accounts in order to create a fake one.
“You fired 5,300 people, you took 5,300 good Americans and turned them into felons with a system that you created, benefited from and drove your stock price up by bragging about your levels of new accounts,” said Rep. Brad Sherman, D-Calif.
In one tense exchange, Rep. Gregory Meeks, D-N.Y., said Stumpf was running a “criminal enterprise,” noting that the bank had been penalized multiple times during the CEO’s leadership, and should step down.
“I serve at the pleasure of the board,” Stumpf responded.
“Then the entire board needs to go,” Meeks said. “Something is going wrong with this bank. If the bucks stops with you” then you should be held responsible.
“The board has that power,” Stumpf said.
In another exchange, Rep. Carolyn Maloney, D-N.Y., noted that Stumpf sold $13 million in stock around the time he learned of the problem in 2013. “My question was did you dump the stock after you found out about the fraudulent accounts,” Maloney said. “Because it seems the timing is very very suspicious and raises a very serious question.” Stumpf said the sale was unrelated.
The controversy has already blossomed with investigations being conducted by the Department of Labor and federal prosecutors. On Wednesday, California Treasurer John Chiang imposed sanctions, saying the state would not invest in the firm’s stock or use many of its services for a year. On Thursday, several lawmakers, including Sen. Elizabeth Warren, D-Mass., asked the Securities and Exchange Commission to investigate whether Wells Fargo and senior officials violated the law by misleading investors.
Wells Fargo was fined $185 million and has returned more than $2 million to customers who were charged fees for accounts they didn’t authorize. Stumpf said the bank’s efforts were costly even before any fines were levied or refunds paid. Just the paperwork involved in opening and closing the sham accounts cost the institution $10 million. This was not a money-making scheme, he said.
“We have a culture based on ethics, and doing what’s right,” Stumpf said. “I stand with the people who are doing the right thing.”
As the hearing dragged into its third hour, Stumpf was asked about the show “Undercover Boss” and if he had ever served as a teller when visiting one of the bank’s more than 6,000 branches and experienced the pressure to sell customers more products.
“I’m not trained or permitted to do that,” he said.
