Wells Fargo CEO John Stumpf denies bank orchestrated fraud

Wells Fargo & Co. (WFC) CEO John Stumpf apologized for the scandal involving the creation of as many as 1.5 million fake bank accounts on behalf of unknowing customers, calling the illegal behavior “unethical.”

“We never directed nor wanted our team members to provide products and services to our customers that they didn’t want,” Stumpf said Tuesday in prepared testimony to the Senate Banking, Housing and Urban Affairs Committee. “That said, I accept full responsibility for all unethical sales practices.”  

Yet Stumpf hedged when pressed to classify the bank’s practices as fraud, saying he is not a lawyer. 

“This isn’t cross-selling, this is fraud -- that is what it is,” Sen. Patrick Toomey (R-Pa.) told Stumpf.     

• Why Wells Fargo CEO John Stumpf is on the hot seat
  
• Did financial regulators let Wells Fargo off the hook?
  

In opening remarks, Alabama Republican Richard Shelby, chairman of the panel, said news reports suggested the problems existed long before 2011, asking “Why did it take an L.A. Times reporter to uncover what should have been uncovered by Wells Fargo’s regulators?”

Pressed by Sen. Sherrod Brown, (D-Ohio), Stumpf refused to commit to the bank using so-called clawback authority to recoup compensation paid to senior executives. Carrie Tolstedt, the former senior executive vice president of community banking, the unit where most of the fraud took place, reportedly received a payout of nearly $125 million when she retired from the financial giant in July. 

Stumpf said he would “accept and respect” any decision made by Wells Fargo’s compensation board, and also denied that Tolstedt had been fired, saying “Carrie chose to retire.” 

The executive drew a harsh rebuke from Elizabeth Warren (D-Mass.), who questioned how Stumpf could not have even considered firing Tolstedt. She also told the CEO he should resign and face criminal prosecution. 

Senators pressed the executive on Wells Fargo’s portrayal of the fraud as stemming from the behavior of low-level and low-wage employees rather than executives higher up the pay ladder. In response, Stumpf reiterated that the 5,300 workers the company has said it fired after discovering the wrongful sales practices represented only 1 percent of the bank’s employees. 

One lawmaker said the number of those who lost their jobs represented more people than live in many small towns, adding that the situation bolstered the argument by Wall Street critics that the nation’s largest banks should be broken into smaller institutions. 

The panel also heard testimony from Thomas Curry, Comptroller of the Currency, and Richard Cordray, Director of the Consumer Financial Protection Bureau, whose agencies oversee Wells Fargo and other financial firms. James Clark, the deputy Los Angeles city attorney, also testified. 

Asked by Sen. Jeff Merkley, D-Ore., if the regulators accept Wells Fargo’s claim that the sales fraud stemmed from a limited number of rogue employees, Curry said that this is “inconsistent with our findings.”