Former Wells Fargo execs, OCC set to square off at fake-accounts trial

Three former high-level Wells Fargo executives who face the possibility of massive financial penalties in connection with the bank’s unauthorized-accounts scandal are scheduled to go on trial this month.

Barring a last-minute settlement, the administrative law hearing in Sioux Falls, South Dakota, will be a rare public face-off between regulators and big-bank executives. The list of potential trial witnesses is a who’s who of prominent names from the fake-accounts debacle, including former Wells Fargo CEOs John Stumpf and Tim Sloan.

Examiners at the Office of the Comptroller of the Currency, which brought the charges in January 2020, are also expected to testify.

Bloomberg

The OCC declined to comment on the trial, which is expected to start on Sept. 13. The agency alleges that the three defendants did not perform their duties and responsibilities adequately and that their failures contributed to systemic problems at the bank.

Lawyers for the defendants — former Wells Fargo Chief Auditor David Julian, onetime community banking executive Claudia Russ Anderson and former executive audit director Paul McLinko — did not respond Tuesday to requests for comment.

Defense lawyers have called the OCC’s allegations unfounded and have sought to focus attention on problems with the agency’s supervision of Wells Fargo. Between 2010 and 2014, the OCC missed numerous opportunities to address sales-related misconduct at Wells Fargo, a government watchdog report found.

“According to OCC examiners, historically, Wells Fargo had a solid reputation,” stated the report, which was released in September 2020.

The fake-accounts scandal, which exploded into view in 2016, was the first in a string of blows to the San Francisco bank’s reputation over the next several years.

In January 2020, Wells Fargo acknowledged that employees who opened accounts without customers’ permission had broken the law — namely by committing fraud and identity theft, and by falsifying bank records. The bank agreed to pay $3 billion to resolve a criminal investigation by the Department of Justice and the Securities and Exchange Commission.

At the time, Wells Fargo CEO Charlie Scharf, who had joined the company the previous year, said in a statement: “The conduct at the core of today’s settlements — and the past culture that gave rise to it — are reprehensible and wholly inconsistent with the values on which Wells Fargo was built.”

The regulatory troubles that began with the phony-account scandal continue to hinder Wells Fargo. Bloomberg reported Tuesday, citing anonymous sources, that the OCC and the Consumer Financial Protection Bureau have warned the $1.9 trillion-asset bank that it may face new sanctions for failing to make adequate progress in compensating victims, strengthening internal controls and meeting other obligations.

Shares in Wells Fargo, which is still operating under an asset cap that was imposed by the Federal Reserve Board in 2018, fell 5.6% on Tuesday, closing at $45.70.

The OCC’s cases against former Wells executives represent one of the largest efforts ever by U.S. regulators to punish individual bankers. The agency has reached settlements with Stumpf, who agreed last year to pay a $17.5 million penalty, and six other former executives whose monetary payments totaled approximately $8.5 million.

While the cases against Julian, Russ Anderson and McLinko have been proceeding toward a trial, there have been no publicly available legal filings recently in the OCC’s case against Carrie Tolstedt, who headed community banking at Wells Fargo until 2016.

In addition to facing the possibility of a $25 million penalty from the OCC, Tolstedt is also being sued by the SEC. That civil suit alleges that Tolstedt misled investors about Wells Fargo’s cross-sell ratio, a measure of products per customer that the bank regularly cited as evidence of its sales prowess.

In a recent response to the SEC’s complaint, Tolstedt cited her right under constitutional right against self-incrimination, Bloomberg reported Monday. Tolstedt’s lawyer has previously said that her client acted appropriately at all times.

In the cases scheduled to go to trial on Sept. 13, the OCC is seeking penalties of $10 million from Russ Anderson, $7 million from Julian and $1.5 million from McLinko. The OCC had initially sought smaller sums of money, and its subsequent effort to increase the potential penalties sparked cries of unfairness from some banking industry officials.

The list of potential trial witnesses includes former Wells Fargo board member Enrique Hernandez Jr., former Chief Administrative Officer Hope Hardison and former Chief Risk Officer Michael Loughlin.

In an Aug. 23, order, Administrative Law Judge Christopher McNeil established plans for two weeks of trial in September and a potential resumption of the case in November.