The storied financial services firm of Wells Fargo just committed the broadest financial crime in American history. This revelation is both a damning indictment of regulatory agencies and a call to action for honest men and women in business.
Here’s what happened.
Over several years, at least 5,300 employees of Wells Fargo’s community banking division created false consumer accounts to meet growth expectations. This included creating fake emails and accounts using other people’s money, and billing them illegally for the service. This is a crime.
In most businesses, a single employee engaged in this behavior would face arrest. However, at Wells Fargo, this was a standard business practice involving more than one in 20 employees supervised by Carrie Tolstedt. This is far and away the broadest financial crime in U.S. history.
Tolstedt’s criminal malfeasance is stunning. The scale of this fraud exceeds the Russian Mafia, in both dollars and employment. Of course, it is far less violent, but who needs threats to make money when you have bankers?
This goes beyond failed leadership. Tolstedt significantly damaged Wells Fargo investors. If, like most people, you have a retirement fund with Wells Fargo shares, you have been defrauded. But this story gets worse.
The Consumer Finance Protection Bureau, a new government agency headed by Richard Cordray, is responsible for oversight of this activity. The bureau fined Wells Fargo $100 million for this crime.
Now, that sounds like real money, but Carrie Tolstedt will retire early, at age 56, with a $125 million golden parachute on top of her $1.7 million salary for supervising this criminal enterprise.
Let me put it in terms a kindergartener can understand, for this is surely a lesson to be learned at that age. Carrie Tolstedt led a robbery worth billions of dollars. Her bosses gave her a $125 million cut for the crime. Then, she was caught and her bosses were fined $100 million and asked to fire the 5,300 who helped rob the bank.
There is no better argument for the closure of the bureau than this case. Congress should eliminate it and let criminal lawyers pursue these sorts of cases. This is a crime, not a customer service problem. The Department of Justice should be involved, rather than a new, neutered and inchoate regulatory agency.
There is also no better argument for a massive regulatory intervention in financial services than this fiasco. I think that would be disastrous for the American economy, but the silence of American business leaders on this matter is deafening (and yes, I especially mean the majority owner, and faux business ethicist Warren Buffet).
The criminality of Wells Fargo, and its tepid and breathtakingly unjust response, should make it a pariah of American commerce. Wells Fargo’s customers and investors should demand the immediate firing of CEO John Stumpf and a withholding of Carrie Tolstedt’s compensation pending the results of a criminal investigation. This should be the end of Wells Fargo.
More importantly, American business leaders must make it clear to all Americans that they will not do business with companies that behave this way. If America’s business leaders cannot make this case, they rightly deserve the heavy regulation that is coming.
Michael Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to firstname.lastname@example.org.