Comment by dzdt | Hacker News Reader

Comment by dzdt | Hacker News Reader

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I think Matt Levine's take on this is right on: https://www.bloomberg.com/view/articles/2016-09-09/wells-far.... Senior management wanted employees to do REAL cross-selling to make money, but the metrics were set so high that employees turned to fake accounts to meet the standard. The fake accounts did not benefit the bank in any substantial way:

So that's about 2.1 million fake deposit and credit-card accounts, of which about 100,000 -- fewer than 5 percent -- brought in any fee income to Wells Fargo. The total fee income was $2.4 million, or about $1.14 per fake account. And that overstates the profitability: Wells Fargo also enrolled people for debit cards and online banking, but the CFPB doesn't bother to count those incidents, or suggest that any of them led to any fees. Which makes sense: You'd expect online banking and debit cards to be free, if you never use them or even know about them. Meanwhile, all this dumb stuff seems to have occupied huge amounts of employee time that could have been spent on more productive activities. If you divide the $2.4 million among the 5,300 employees fired for setting up fake accounts, you get about $450 per employee. Presumably it cost Wells Fargo way more than that just to replace them.

It seems senior management set up a stupid employee incentive program, but were not intentionally involved in the fraud.

Matt Levine just shows that Wells Fargo wanted a paper trail showing that they told employees not to do this. The interesting question is, what happened when whistleblowers told them it was happening anyway? Apparently, the answer is that they fired the whistleblowers. That says everything about what Wells Fargo really wanted, as opposed to what they said to cover their asses. Remember, he's an industry insider with a bias.

I'm shocked - shocked! - to find that gambling is going on here!

For those that don't get the above reference https://www.youtube.com/watch?v=nM_A4Skusro

Explain what exactly Wells Fargo upper management had to gain from the fake cards? They wouldn't generate real money for the company. The people who stand to benefit most are the individual employees.

I don't know the banking industry well so maybe there is some way for the company to make money off fake cards but I can't think of one. And because of that, I tend to believe that upper management really did not intend it to happen.

If you own stock in the company and this causes the stock to go up (even if the rise is artificially inflated) you can still make plenty of money.

Yeah but what about fake accounts would make the stock go up? Wouldn't it actually make the revenue per account go down which would seem to me to be negative indicator. But again, I don't know the banking industry.

Growth metrics

Their stock price was heavily based on their high cross-selling metrics.

It's a short term bonus ploy, and the idea is it doesn't get found out while they're at the company Also a lot of head-in-the-sand doublethink too. Michael Lewis' book, and other in-depth reports about bankers' behaviour in the market / housing crash explains it nicely. Short term incentives for executives and moving jobs means that they aren't there when the chips are down.

> The people who stand to benefit most are the individual employees.

And their managers, and their managers' managers, whose income depends on showing good numbers to the nth-managers.

> Apparently, the answer is that they fired the whistleblowers.

That's the major sin here.

> The interesting question is, what happened when whistleblowers told them it was happening anyway? Apparently, the answer is that they fired the whistleblowers. That says everything about what Wells Fargo really wanted

It says everything about what the people in the loop of those decisions wanted, perhaps, but those people (at least, those for whom there is a known paper trail of them being in the loop) are probably several steps removed from the CEO. They also probably also maintained enough of a paper trail of the notional reasons that they were firing the people involved that, while its a reasonable inference from the association between whistleblowing and firing that there was an ulterior motive, it would be far from certain that that could be established to the degree necessary for that to the basis of criminal culpability.

This ignores that top management is also paid in large part with company stock and in the 5 years prior to this being discovered the stock doubled. One of the metrics that had investors excited was the increasing number of accounts which was publicly reported.

I would have an easier time believing this if the company had not retaliated against people who tried to complain internally.

They fired thousands of people for creating accounts without permission. It's hard to say they looked the other way.

It doesn't seem possible that 5000(!) employees did this and the CEO had not a clue.

Of course it is. In a company that size where employees work all across the country it's actually very hard for the CEO to find out about sth like this.

He can only create structures (e.g. internal audit team) that are powerful enough to detect it and report it to him.

Did you know that there's a reality tv show based on this premise?

Maybe they should have figured out that their incentive structures were wrong when they had to fire 5000 people over several years. But the very act of firing thousands of people shows that they were discouraging it, strongly.

There's still a duty of vigilance.

And IANAL but that's a tort, not a crime.

"Give a manager a numerical target & he will hit it, even if it means destroying the company to do so."

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