American Justice Notebook

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Former Wells Fargo Executive Guilty of Obstructing Bank Examination — Opening Millions of Accounts without Customer Authorization

            LOS ANGELES

The former head of Wells Fargo Bank’s retail banking division agreed to plead guilty to obstructing a government examination into the bank’s widespread sales practices misconduct, officials announced Tuesday.

This included opening millions of unauthorized accounts and other products, officials stated.

            In a plea agreement filed Tuesday in U.S. District Court, Carrie L. Tolstedt, 63, of Scottsdale, Arizona, agreed to plead guilty to one count of obstruction of a bank examination.

A sentencing hearing is tentatively set for April 7.

            The Office of the Comptroller of the Currency (OCC), which investigated misconduct at Wells Fargo, also resolved with Tolstedt in a regulatory proceeding.

As part of the consent order resolving that matter, Tolstedt agreed to a ban from working in the banking industry and to pay a $17 million civil penalty.

           “The justice system and regulators rely on corporations and their executives to fully cooperate during investigations into potential wrongdoing. But, in this case, Ms. Tolstedt took steps to cover up the misconduct at Wells Fargo,” said Acting United States Attorney Joseph T. McNally. “Obstructing an investigation compromises the mission of those seeking the truth, and we will hold accountable any individual who attempts to conceal wrongdoing.”

From 2007 to September 2016, Tolstedt was Wells Fargo’s senior executive vice president of community banking and was head of the Community Bank, which operated Well Fargo’s consumer and small business retail banking business.

The Community Bank managed many of the products that Wells Fargo sold to individual customers and small businesses, including checking and savings accounts, CDs, debit cards, bill pay, and other products.

Wells Fargo previously admitted that, from 2002 to 2016, excessive sales goals led Community Bank employees to open millions of accounts and other financial products that were unauthorized or fraudulent.

In the process, Wells Fargo collected millions of dollars in fees and interest to which it was not entitled, harmed customers’ credit ratings, and unlawfully misused customers’ sensitive personal information.

Many of these practices were referred to within Wells Fargo as “gaming.” Gaming strategies included using existing customers’ identities – without their consent – to open accounts.

Gaming practices included forging customer signatures to open accounts without authorization, creating PINs to activate unauthorized debit cards, and moving money from millions of customer accounts to unauthorized charges in practice known internally as “simulated funding.”

Gaming also included opening credit cards and bill pay products without authorization, altering customers’ contact information to prevent customers from learning of unauthorized accounts to avoid Wells Fargo employees from contacting customers to conduct customer satisfaction surveys, and encouraging customers to open accounts they neither wanted nor needed.

According to the plea agreement filed today, by no later than 2004, Tolstedt was aware of sales practices misconduct within the Community Bank and that employees were terminated each year for gaming.

By no later than 2006, Tolstedt was learning about the gaming practices from corporate investigations and, over time, realized that terminations for gaming in the Community Bank were steadily increasing and that the misconduct was partly linked to sales goals within the Community Bank. But, unfortunately, that termination number likely underestimated the scope of the problem.

Although the Community Bank eventually took steps purportedly designed to identify sales misconduct proactively, the measures used by the bank flagged only a tiny portion of the potentially inappropriate activity for investigation.

As of July 2014, only the most egregious .01 to .05 percent of employees engaging in activity considered a “red flag” for sales practices misconduct were investigated – with the remaining 99.95 to 99.99 percent left unexamined under this process, according to officials.

In May 2015, Tolstedt participated in preparing a memorandum, which she knew would be provided to the OCC in connection with its examination of sales practice issues at Wells Fargo.

To minimize the scope of the sales practices misconduct within the Community Bank, Tolstedt corruptly obstructed the OCC’s examination by failing to disclose statistics on the number of employees who were terminated or resigned pending investigation for sales practices misconduct.

She also failed to disclose that the Community Bank proactively investigated only a tiny percentage of employees who engaged in activity flagged as potential sales practices misconduct.

Wells Fargo, in 2020 acknowledged the widespread sales practices misconduct within the Community Bank and paid a $3 billion penalty in connection with agreements reached with the United States Attorneys’ Offices for the Central District of California and the Western District of North Carolina, the Justice Department’s Civil Division, and the Securities and Exchange Commission, officials stated.

The statutory maximum sentence for obstruction of a bank examination is five years in federal prison.

Tolstedt has entered into a plea agreement that calls for up to 16 months in prison, which prosecutors believe is the high end of the sentencing guideline range for the obstruction offense.

The plea agreement is “binding,” which means the court must accept or reject all aspects of it.

Should the court reject the plea agreement, including the agreed-upon sentencing range, any party may withdraw.

The FBI; the Federal Deposit Insurance Corporation, Office of Inspector General; the Federal Housing Finance Agency, Office of Inspector General; the Office of Inspector General for the Board of Governors of the Federal Reserve System and Consumer Financial Protection Bureau; and the United States Postal Inspection Service are investigating this matter.

            Assistant U.S. Attorneys Alexander B. Schwab and Carolyn S. Small of the Major Frauds Section, Special Attorney Benjamin S. Kingsley, and Assistant U.S. Attorney Daniel S. Ryan of the Western District of North Carolina are prosecuting this matter.


(CNBC News Report 2022)