Wells Fargo Slammed in Customer Suit Over Account Abuses
Laura J Keller LauraJKeller Bloomberg.com
Wells Fargo & Co. was sued by customers in what may be the first of many lawsuits to come after disclosures that employees created unauthorized accounts to boost the bank’s fees.
Three Utah customers sued the bank Friday in federal court, blaming the scandal on the lender’s push to increase the number of accounts held by clients to an average of eight -- its “gr-eight” initiative. That strategy led to customers’ money being transferred without their authorization to accounts created without their knowledge, and then the bank charging fees on those accounts.
“Wells Fargo quotas are difficult for many bankers to meet without resorting to the abusive and fraudulent tactics,” the customers said in their complaint. “Those failing to meet daily sales quotas are approached by management, and often reprimanded and/or told to ‘do whatever it takes’ to meet their individual sales quotas.”
Wells Fargo agreed to pay $185 million in fines and penalties in a settlement this month with federal regulators. The San Francisco-based bank didn’t admit or deny wrongdoing as part of that agreement. The bank has fired 5,300 workers -- about 10 percent of whom were managers -- and said it would eliminate sales goals linked by regulators to its cross-selling strategy.
A group of Democratic U.S. senators, led by Elizabeth Warren of Massachusetts, asked Chairman and Chief Executive Officer John Stumpf in a letter dated Thursday whether the bank will claw back top managers’ pay following allegations involving millions of unauthorized accounts. The lawmakers called out Carrie Tolstedt, who led the unit where the alleged misconduct occurred, saying there seems to be ample justification for recouping at least some of her compensation.
Tolstedt, 56, was head of community banking until July, when the bank announced she was retiring and would be replaced by retail brokerage head Mary Mack. She is described as the “chief sandbagger” in the Utah lawsuit, referring to what it describes as Wells Fargo’s practice of failing to open customer accounts in a timely fashion, instead stockpiling them until the next sales reporting period.
Wells Fargo could recoup about $17 million in unvested shares from Tolstedt, according to a Bloomberg analysis of figures compiled from regulatory filings. Cash and stock she already owns -- including about $51 million of shares amassed during her 27-year career and $36 million in previously vested stock options -- aren’t eligible for claw back, according to the filings.
Wells Fargo shares fell for the sixth straight session Friday, dropping 1.6 percent to $45.43. The stock has tumbled 16 percent this year, the worst performance in the 24-company KBW Bank index. Since the settlement with the U.S. regulators, Wells Fargo lost its ranking as the world’s most valuable bank. JPMorgan Chase & Co. and Industrial & Commercial Bank of China Ltd. have now both eclipsed it.
The plaintiffs in the Utah lawsuit seek to represent other customers in a class action and to recover at least $5 million in damages from the bank. They said the company also should have to pay punitive damages for its failure to alert customers to the abuses for more than a year after it was sued by the Los Angeles city attorney.
Bank executives were aware employees were gaming the system but failed to intervene, according to the lawsuit. Instead, executives including Tolstedt were rewarded and promoted for bolstering the bank’s numbers, the plaintiffs allege. Firing more than 5,000 employees after the scandal became public was merely “cosmetic” and intended to provide “plausible deniability," they said.
Mary Eshet, a Wells Fargo spokeswoman, declined to comment on the lawsuit.
Stephen Christiansen, a lawyer for the plaintiffs, said he believes his case is the first class-action against Wells Fargo since the U.S. Justice Department investigation began. He said Tolstedt and other employees may be added as defendants.
In their suit, the plaintiffs seek to force Wells Fargo to claw back compensation from “those who profited personally from the illegal behavior.”
The plaintiffs, who contend the group might cover 1 million customers, said the bank invaded customers’ privacy and "failed to protect and safeguard" their confidential information. "The highest-ranking executive members of Wells Fargo, which may have included Carrie Tolstedt," knew about that failure, they said.
Some customers learned of the unauthorized actions only by, for example, receiving welcome e-mails from Wells Fargo congratulating them on opening new accounts, according to the complaint. Others got calls from collection agencies warning them they were overdrawn on accounts they didn’t recognize.
The bank is also accused in the suit of misleading customers to force them to open new accounts, sometimes falsely stating that they would face penalties without additional products.
The case is Mitchell v. Wells Fargo Bank, National Association, 16,-cv-00966, U.S. District Court, District of Utah.