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The Planet Money podcast investigative journalism was some of the most disheartening listening I've encountered all year.

The two most glaring abuses, in my mind, were the blackmailing of employees to put their name on a banking industry do-not-hire list if they didn't make sales quotas that proved nearly impossible without the opening of fake accounts. Essentially, WF used the industry fraud blacklist as a punishment for employees unwilling to commit fraud.

The second malevolent practice was using the company ethics line as a kind of honeypot to discredit and fire potential employees who wanted to report opening fake accounts on clients' behalf.

http://www.npr.org/sections/money/2016/10/07/497084491/episo...

http://www.npr.org/sections/money/2016/10/28/499805238/episo...

I want to leave WF solely on this issue but it is so hard to actually change banks. They have better to me then other national banks as a customer but I find this to be beyond repair.

In the UK they've actually fixed this. The whole process of switching is automated and requires very little work from you. The process is called the "Current Account Switch Guarantee" (Current Account is British for Checking Account). All of your electronic payments (in and out) are migrated automatically. And because the vast majority of payments in the UK are done using direct debit nowadays (rather than checks), there's very little extra work to do on your part. I'm a US citizen but spent a few years in the UK. I miss their banking system.

Here's an example of the standard process: http://www.hsbc.co.uk/1/2/switching-to-hsbc

If you're thinking about switching banks you should strongly consider moving to a credit union. Do your research but many(all?) are member owned and offer many benefits when it comes to fees you might otherwise occur at big bank. I could not be happier with my current credit union

The credit unions in my town had one or 2 branches (in a town of 300k+ people) in very obscure locations. Maybe an extra ATM here or there if you knew where to look. Yet there was always a wells fargo branch or ATM within a 2 mile radius.

If a CU wants my business, they should have a branch that's open till 8 or 9pm, open saturday and sunday, and have plenty of ATMs throughout town. That's a start, then they can have at least everything WF offers, such as linked credit and home equity accts. They should innovate, not lag behind.

Most people need to go to a branch rarely, so the number of branches doesn't seem like a big deterrent for most.

As for the number of ATMs, both credit unions that I belong to are part of the sum network (free reciprocal ATM access) and actually reimburse me for fees that off network ATMs might charge.

After years of getting slammed by big banks with excessive fees when cash was tight and balance ran low, I came to appreciate using an institution whose goal is not to profit off of me however they can.

I'm at a predicament because WF has been very good to me, going back to circa 1999. never opened fake acct's, never charged me predatory fees, always had easy-to-access ATMs, friendly tellers, never made a single mistake. Now they have my mortgage and HELOC, so as much as I'd like to "punish" them by cancelling my account, I'd be punishing myself just as much.

I left Wells Fargo. It's not as hard as you think.

FWIW I went to Chase Bank. I'm not happy, I'm not sad. Banking is as exciting as a loaf of bread. The less I interact with a bank and the humans at a bank, the happier I am.

I didn't find it hard at all. The few places I use auto-pay come off of credit cards for this very reason. I just had to keep a little extra money in my "old" account for a month or two just in case.

The scariest part was, after a couple months and no spending, the bank said to close my account I had to write a check to myself for the exact balance in my account. Once cashed, and the account hit $0, it would close automatically. I was terrified of overdrafting or undershooting it by 1 cent or something.

I suppose there must be an exception for financial institutions but this is why employment blacklisting is illegal in California. It seems like a good idea (as an employer) until you realize how utterly ripe for abuse it is.

I don't know if this abuse is enough to warrant regulation of the way the finance industry operates the blacklist but perhaps it's worth considering. I'm not sure how you could retain the obvious benefits of the blacklist while preventing abuse though. Perhaps require that only illegal/fraudulent behavior as a permissible reason?

I don't know enough about the industry to really offer meaningful suggestions that won't have catastrophic unintended consequences but abuse of employees by their employers makes me incredibly angry.

IIRC, several of the blacklisted employees were in CA. I wonder if it's somehow legal in this situation.

>"The two most glaring abuses, in my mind, were the blackmailing of employees to put their name on a banking industry do-not-hire list if they didn't make sales quotas that proved nearly impossible without the opening of fake accounts."

Are you referring to a U5? That would be ironic because I believe that all of the retail employees that were fired now have a huge red flag on their U5 which means it will really difficult to get a job in the industry going forward.

Yes, the second link leads to the episode discussing the origin of the form.

>The two most glaring abuses, in my mind, were the blackmailing of employees to put their name on a banking industry do-not-hire list

But we want the CEO to go to jail?

When people in the financial world do "wrong", they go on a list. The dispute here isn't about the list, it's about whether they did "wrong" (which appears they didn't).

This article is about an entirely separate issue - the Federal Reserve does not have confidence in Wells Fargo's plans for closing down the company if things go south.

That's another reason to shut it down.

So not only too big to fail, but too big to ever go out of business. That's quite a nice setup, almost like a guaranteed basic income.

That's the point of Dodd-Frank; if the bank gets into this situation, it is no longer allowed to pay out dividends to shareholders, and is limited in the investments it is allowed to make, with the aim of removing it from this situation.

Doesn't matter. Every thread from now until the end of time will mention it. Just like Microsoft is a "convicted monopolist".

>Many C-suite people plainly knew and encouraged or stood silent and should go to jail.

I'm not actually sure about that. Why would they want to encourage this sort of behaviour when it never made the bank any money? Presumably, C-suite people are compensated based on the financial performance of the bank so they would be motivated to encourage subordinates to commit frauds that drove that performance.

The fake account frauds didn't. The whole reason they were able to get away with it for so long despite the number of accounts is that most of these were no-fee accounts. The people whose identity was stolen to open them never saw a bill or a statement related to the account which is why they never noticed. However that also means that WF didn't actually benefit from the fraud.

The retail level employees and their immediate supervisors were incentivised based on number of opened accounts, regardless of any revenue produced from them, which is why they did this in the first place.

In your reckoning why were the whistleblowers persecuted, if the bank top brass did not gain from it? How, in your understanding, did the line managers orchestrate firing of employees who notified HR organizations specifically set up for reporting such grievances?

There were obviously relatively senior (above branch level) people in on this scam, otherwise as you say, the jig would have been up as soon as a few people went to HR. I'm just not convinced that it's absolutely necessary for the most senior people to have known about it, especially since I can't imagine what they would have gotten out of it.

Yet SarbOx is still the law.

> I'm not actually sure about that. Why would they want to encourage this sort of behaviour when it never made the bank any money?

Huge bonuses based on performance metrics? WF executives were given 100s of millions in bonuses during this period of fraud.

so isnt that extraction of value from the company? the company lost money paying out bonuses for sales it didnt make.

The most senior staff (C-suite) usually have compensation which is aligned with ultimate financial results of the company. I assume that there must have been mid-level WF headquarters people in their retail business who were compensated based on the number of account openings, these people would have had an incentive to cover up fraud that they suspected was going on in the branches.

The performance of the company for those C-level executives is measured in how high the stock price is. The number of accounts and customers that a bank has influences this, especially when it is growing consistently over a long period of time. This means that the C-level executives did get a benefit when lower level people were fraudulently creating these accounts.

Keep in mind that C-suite compensation typically is on the scale of a few years or less, not 5-10 years which is where you'd start to care about long-term ramifications of behavior such as this.

>Presumably, C-suite people are compensated based on the financial performance of the bank...

They were. Many of their performance incentives would have also been tied to WF stock values, which were greatly inflated due to WF's higher than industry average cross sell metrics. Although as you observed many of the accounts were no-fee the company's stock benefitted from these non-revenue improvements

I do not think the solution you propose 'is really the only way we can save our modern capitalism from itself'.

The market cap of WFC is 275 billion dollar. Pushing it into bankruptcy where even bondholders lose money implies that stockholders would lose all their money (since they are in line behind bondholders). I do not think that would be fair to stockholders (among which are pension funds). Selling off divisions would almost certainly lead to more concentration in the banking sector and more job losses at the lower level. I do not think that would solve anything.

> I do not think that would be fair to stockholders (among which are pension funds).

How is it not fair? Why should they bear no responsibility in the behavior of something they are funding? They should indeed lose money for being reckless in their investment.

The alternative is to let the rest of society, that has no stake in the company, bear the cost of their toxic activity. How is it more fair than making stockholders pay?

The punishment should be proportional to the damage that has been done. The settlement they reached was for 190 million dollar. That affects stockholders directly. You can argue that that fine is too low. I can agree with that, but saying the company should be put into bankruptcy is saying that the fine should be 275 billion dollar. I do not see how you can justify that.

I do not think destroying the complete company as a deterrent will help. That will not deter executives which will still be making money hand over fist. It will however deter investors in investing in companies in general.

I think a better way to address this situation is by reimbursing affected customers (which has mostly happened AFAIKT), compensating wrongly fired employees, disciplining the responsible executive (by firing and clawing back their compensation, which has happened partly). Improved oversight (internal/external) and whistleblower procedures should also be instated.

$0.190 billion is a trivial amount for Wells Fargo: it amounts to 3.4% of their Q3 2016 profits. They made $5.6 Billion dollars last quarter on $22.3 Billion in revenue. [1]

If an individual commits one count of Social Security fraud they would pay a fine of $10,000 or about 20% of the median household income. [2] (This is an arbitrarily picked form of financial fraud)

If the bank had a proportional punishment they would pay 20% of their annual revenue for systemic fraud, which would be roughly $18 billion dollars.

[1] https://www.wellsfargo.com/about/investor-relations/investme... [2] https://www.reference.com/government-politics/penalties-comm...

edit: used quarterly instead of annual figure for calculation

Yes, the fine is quite small for WFC and a fine of 18 billion dollars definitely would get their attention. It's still something WFC could survive (it's about a year's worth of profits), and totally different from putting WFC into bankruptcy.

I'm not convinced you can compare personal law and corporate law. The fact that it's a fixed fine in personal law, regardless of income/wealth doesn't seem fair. Also, if you want to extend the analogy maybe it would be more appropriate to take 20% of profits? 20% of revenue it much easier for Apple to stomach than Walmart, because of higher margins. But then what do you do with companies that don't make a profit...

Those shareholders should go after the officers of WF who failed in their fiduciary duty when they signed off on this fraudulent activity.

I hear you, in terms of punishing the wrongdoers, but how do you punish someone that is overseeing everyone else's money without having adverse effects on the bank's unknowing customers.

If WF goes under and takes their customers down as well, then we didn't really solve the problem. Put another way, you end up punishing the people who had nothing to do with the crimes rather than those that committed the crimes in the first place

Putting WFC in bankruptcy like fludlight proposes does not necessarily make customers lose money. I do agree, though, that it doesn't solve the problem.

>Putting WFC in bankruptcy like fludlight proposes does not necessarily make customers lose money

It should. Otherwise the rest of us are paying for it.

"Customers" are either lending to or borrowing from the bank. If it's the former, it's usually safe...but not 100%. If the bank fails to pay you back, that's your problem, is it not?

> It should. Otherwise the rest of us are paying for it.

No, WFC is solvent, so nobody has to pay for anything.

In a bankruptcy, customers, the people depositing money in the bank, are first in line, then bondholders (first senior, then junior) and finally stockholders. Fludlight was proposing forcing WFC into bankruptcy as a punishment. Stockholders would lose all their money and bondholders lose part; customers would get their deposits back, I imagine.

> If the bank fails to pay you back, that's your problem, is it not?

In a free market, yes. But fractional reserve banks in a free market are vulnerable to bank runs because they engage in maturity transformation (borrow short, lend long). That is an unstable situation: an unsubstantiated rumor can start a bank run which would lead to a collapse of the bank. To remedy that, the government usually guarantees deposits up to a certain amount (in the US, FDIC guarantees up to $250,000).

And when the government guarantees the deposits, who pays? Us.

Are retail deposits not covered by some kind of government backed scheme? Are commercial deposits not insured as a matter of course?

Prison?

Putting a murderer in prison doesn't un-murder their victims and it can leave their dependents without a means of support, but you still do it.

It sickens me to the core that regulators are so toothless. It is beyond belief that They settled with WF. Thinking about it actually makes me angry. Same as with the robo-signing fraud that other banks perpetrated before the financial crisis.

If you're eligible, I think you should run for office.

Agree with most everything you said. Just commenting to say that there is no RICO case here and that any plaintiff would be laughed out of court for bringing one.

You don't have to win or even bring charges. The mere prospect of criminal charges destroyed Drexel.

How is this relevant to the article?

This is a gross misrepresentation of what happened. Thousands of WF employees engaged in fraud that harmed Wells Fargo in order to make themselves appear more productive than they actually were and take money from WF. WF explicitly instructed employees not to do this.

Matt Levine, as usual, has a very coherent summary of it:

https://www.bloomberg.com/view/articles/2016-09-09/wells-far... https://www.bloomberg.com/view/articles/2016-09-19/tough-tar...

RICO is used to target criminal organizations. There is no evidence whatsoever that the employees who were ripping off WF conspired with each other.

You are literally blaming the victim here.

I don't know how the author can draw this conclusion. He seems to say that employees engaging in shady practices is the inevitable conclusion of requiring a certain amount of accounts to be opened, and then blames the employees for doing it instead of those who wrote the policy.

The article quotes:

"Wells Fargo has strict quotas regulating the number of daily "solutions" that its bankers must reach; these "solutions" include the opening of all new banking and credit card accounts. Managers constantly hound, berate, demean and threaten employees to meet these unreachable quotas. Managers often tell employees to do whatever it takes to reach their quotas. Employees who do not reach their quotas are often required to work hours beyond their typical work schedule without being compensated for that extra work time, and/or are threatened with termination.

"The quotas imposed by Wells Fargo on its employees are often not attainable because there simply are not enough customers who enter a branch on a daily basis for employees to meet their quotas through traditional means."

This reads to me like damning culpability. Then he says, "But obviously no one in senior management wanted this." Well of course they don't, now that they've been caught! But it was a pretty good scheme at the time raking in millions of dollars.

The purpose of cross-selling is to make money, and that's why salespeople are incentivized to do it. The total amount of extra fees that were charged due to this is $2.4M (i.e. negligible to WF), or $1.14/fake account, or $450/dishonest employee.

If an underperforming employee earned $450 in pay that they did not deserve, WF lost money on this. As matt levine explains:

If your customers have a checking account, and a savings account, and a credit card and online banking, all in one place, then they'll probably use each of those products more...when they want a...mortgage...or investment advice -- they're more likely to turn to the bank where they keep the rest of their financial life...No one feels extra loyalty because they have a banking product that they don't use or know about.

In website terms, this is roughly equivalent to the head of marketing buying fake traffic so he can tell his boss that he did a good job with SEO and ask for a raise.

> WF lost money on this

This ignores the fact that Wells Fargo is a publicly traded company and has an incentive to make their numbers look good for their shareholders.

... And to be clear, your assertion is that thousands of employees across different branches all independently decided to commit fraud and risk their jobs all for an additional 450 per pay check? That is your alternative explanation?

On the contrary, I think they committed fraud to keep their jobs. The $450 is a break-even number; if not getting fired resulted in the employees getting an extra $450 in pay, then WF lost money.

I could be missing something here but whether or not Wells Fargo was losing money on each account opening in the short term or even overall is orthogonal to the issue. It might call into question the wisdom of how they structure bonuses but that's not relevant to the real victims which are the customers and bond holders.

> This is a gross misrepresentation of what happened. Thousands of WF employees engaged in fraud that harmed Wells Fargo in order to make themselves appear more productive than they actually were and take money from WF. WF explicitly instructed employees not to do this.

I agree that Wells Fargo ULTIMATELY didn't benefit much from this mess. Your linked article explains this situation thusly:

> fraud is sometimes an emergent property of complex institutions, and that there can be widespread misbehavior at a bank without senior management approving it, or knowing about it, or wanting it.

Fair enough, good metrics are difficult to find and the managers of huge organizations are basically playing a billion dollar version of the blind men and the elephant.

However, I think this explanation ignores two critical things:

1) Wells Fargo DID benefit from the wide-scale fraud in the short run, because juicing the metrics boosted the stock price and generally made senior management look good.

2) Many employees claim that they reported the fraud to internal ethics watchdogs, who should have nothing to gain by perpetuating the scam, only to be ignored or retaliated against for doing so.

I think these facts totally discredit the "lazy employees cheating their employer" narrative and set up an "assholes or idiots" situation for senior management.

I agree senior management were "assholes or idiots", and did not do a good enough job preventing employees from stealing. If I owned WF shares I'd be really angry and I'd probably vote against the current board of directors.

But I'm replying to a post alleging that RICO should be used - essentially claiming that WF is the equivalent of a mafia front and that the CEO is basically Tony Soprano. That's what I'm arguing against.

If the claim that "Employees who do not reach their quotas are often required to work hours beyond their typical work schedule without being compensated for that extra work time" is true, then it's not the employees stealing from the employer but the other way round.

I won't comment on the applicability of RICO but we must hold executives personally accountable for the behavior of their organizations. In many cases that might reasonably mean severe financial penalties and being barred from working in an industry rather than jailtime. I'm not calling for their heads but they have to be held accountable when they don't create effective policies and permit or encourage company cultures that allow fraud and abuse to flourish. And effective policies don't just mean jotting them down in a rule book or creating an ethics hotline. You have to create the processes and structure to enforce them and detect violations.

It's hard, in this situation, to say what "Wells Fargo" really wanted since Wells Fargo is just a corporation without any brain of it's own. I'd be perfectly willing to believe that Upper Management would have been horrified at the situation if they'd known. But at the same time this seems to have been pretty widespread within some level of lower management.

Which one is really Wells Fargo? That's not a question with a real answer unless you specify why you're asking. From the perspective of an investor it would be wise to treat upper management as the real Wells Fargo. But for a customer the fraudy bits are the ones you're interacting with.

So why has only WF seen this? Could it be that their internal controls on account signup were deliberately lax? And why is there always someone on HN willing to stand up for the poor helpless neglected multibillion dollar business?

I'm reminded of "will no one rid me of this troublesome priest" ( https://en.wikipedia.org/wiki/Thomas_Becket ). Not specifically asking that someone be murdered, but implying from a position of power that it's something you really want to happen.

Similarly setting up an incentive system with targets that are unmeetable without unethical practices then looking the other way when those practices happen implies a certain amount of complicity. It's just really hard to prove, which is the intention, and why some offences are "strict liability".

Not to mention that the use of punishment for not meeting unmeetable targets is not the same as not giving out bonuses for not meeting them.

> So why has only WF seen this?

Why do you think only WF as seen this? They simply are the tall poppy that went a bit too far.

The high metrics that purposefully cause employee turnover due to not being long-term sustainable are more or less industry standard. These policies always lead to at least some low-level fraud trying to game the numbers by the retail level folks, but usually it's a dull roar and more an annoyance that easily gets eclipsed by the additional sales benefit.

And not even the banking industry. The retail service industry. It's simply how the game is played these days, Wells Fargo wasn't much interesting in this respect, they were just ham fisted and clumsier than most.

If you ask any retail bank employee working at Wells Fargo vs. any of the other retail majors wasn't a much different experience. Working as a retail banker is also much more like working as a manager of Instant Oil Change selling upsells than an investment banker deciding where to invest. I think you'll find most folks prefer the Wells Fargo job over other majors; at least my friends who were bank tellers/retail bank managers did.

I have a relative who was fired from Wells Fargo and who i know for a fact was involved in this issue, and I can assure you, when Wells bought out the smaller bank that this person was already working for as a branch manager, it was a completely different experience. People who had decades of experience as successful branch employees had their lives turned upside down once they became employees of Wells. it was an entirely unique situation.

I agree that WF screwed up really bad. If I were a shareholder I'd be mad.

As a person who isn't a shareholder, I look at this the same way I look at other companies I don't own (e.g. Knight Capital, Yahoo) being mismanaged: ¯\_(ツ)_/¯

Not to mention that the use of punishment for not meeting unmeetable targets is not the same as not giving out bonuses for not meeting them.

Either way, regardless of whether they got caught or not, WF lost money on this. It's a screwup that harms them, not a criminal conspiracy as the parent poster alleged.

Levine's later posts paint a very different picture of the scandal. It feels fairly disingenuous to squarely blame the employees, who by all accounts were overworked, underpaid, and explicitly instructed to boost their cross-sell numbers.

https://www.bloomberg.com/view/articles/2016-11-03/banking-v...

Later information makes clear that managers found out about this behavior, at the very least abided, and even fired employees who complained.

The post you cite doesn't disagree with what I said at all. It describes the idea of creating fake accounts as a bottoms-up idea spread by cultural diffusion:

Even after carefully following the senior managers in charge of Wells Fargo's bad sales practices, the story still feels like one of cultural diffusion, of anonymous ancient peoples moving across the land and leaving archaeological traces of their passage, like stone tools and animal bones and unwanted debit cards.

It points out that there was probably no conspiracy, no explicit instructions, and that the whole thing was unprofitable:

It seems unlikely that he ever told anyone to open any fake accounts; certainly there's no evidence that he did. It doesn't even seem like he had much reason to want the fake accounts, which after all were not profitable.

What is the "different picture" you think this article paints?

I think that we're talking about different levels of management, and their incentives.

At the C-level there aren't great incentives for the accounts. There's an argument to be made that metrics can boost stock price, but whatever. At the branch management level though, there are definitely incentives to not shutting down the practices, after managers found out about them. Even if there aren't explicit instructions, if managers don't disallow the practice after they discover it, that indicates WF involvement beyond the individuals who actually opened the accounts. Furthermore, firing individuals who complain about the fake account practice is a clear example of corporate culpability in this scandal.

Sure, this might not meet conspiracy standards. But it's hard to unilaterally paint the bank as a victim, when there's so many organs to the bank.

I think you're right; I was referring to upper management (as was fludlight in the original post I responded to), you are discussing branch managers. I agree that branch managers were involved.

I agree with you that if the firings happen as alleged, that's a problem. But note Matt Levine's skepticism, which I share:

But I wonder how many of the 5,300 people fired by Wells Fargo for creating fake accounts now claim that they were actually fired in retaliation for refusing to create fake accounts?...Everyone I've seen or heard interviewed about the scandal describes seeing people create fake accounts, but not doing it themselves.

By describing the bank as a victim, I meant the shareholders.

While these employees were certainly committing fraud and knew better I think it's an enormous stretch to call Wells Fargo a victim. At this point in human cultural development we have a solid grasp on the power and danger of perverse incentives. Particularly in safety and finance.

There's no excuse for a financial institution to not have policies and processes to prohibit, prevent and detect misaligned incentives put in place by sales organizations/departments/teams within the institution. No one wants to mess with their sales organizations without being legally compelled to since they're the ones generating income but financial institutions have a special responsibility and obligation to society to not fuck things like this up.