Wells Fargo Fraud

Under pressure to meet steep sales goals and incentives, Wells Fargo employees created over a million fraudulent accounts in their customers’ names.

Case Study

American financial institution Wells Fargo was beating the odds in a bad economy. During the financial crisis in 2008, the bank acquired Wachovia to become the third-largest bank by assets in the United States. A few years later, its growing revenue and soaring stock brought the company’s value to nearly $300 billion. But behind this success was a company culture that drove employees to open fraudulent accounts in attempt to reach lofty sales goals. Between 2011 and 2015, company employees opened more than 1.5 million bank accounts and applied for over 565,000 credit cards in customers’ names that may not have been authorized.

Many former employees reported that company sales goals were impossible to meet, and incentives for compensation and ongoing employment encouraged gaming the system. Wells Fargo pressured employees to cross-sell, offering customers with one type of product, such as checking or savings accounts, to also buy other types of products, such as credit cards and loans. One former employee described it as a “grind-house,” with co-workers “cracking under pressure.” Another former employee reported, “If you don’t meet your solutions you’re not a team player. If you’re bringing down the team then you will be fired and it will be on your permanent record.”

In mid-2014, Well Fargo attempted to curb fraudulent activity with an ethics workshop that warned employees not to create fake accounts in customers’ names. Wells Fargo also modified its compensation structure to place less emphasis on sales goals. But in the following years these efforts were not enough. The company continued to fire employees over fraudulent accounts. Wells Fargo spokesperson Mary Eshet stated, “The steps we have been taking have been effective [and] we are continuing to do more.” Their own analysis showed a decline in fake accounts by 2015, but many were still being created.

One former employee described his brief time at Wells Fargo as “the lowest point of my life.” He encouraged an elderly woman to sign up for a credit card she did not want by telling her “it was confirmation that she stopped by to update her address.” This made him sick to his stomach. He reported, “But it was a tough economy, and I was worried, if I lost this job, I would be in a tough financial situation.” Deceptive practices such as this were widespread across the company, and many former employees reported that their managers knew about them. Jonathan Delshad, a lawyer working on behalf of former employees, said, “The better they did at sales, the more they advanced, so it got spread across the company. An entire generation of managers thrived in the culture, got rewarded for it, and are now in positions of power.” One former employee said she could not meet sales goals in any ethical way and called the Wells Fargo’s ethics hotline. She was eventually fired.

In 2016, Well Fargo was fined a combined total $185 million for fraudulent activity, and CEO John Stumpf resigned. Between 2011 and 2016, approximately 5,300 employees were fired for fraudulent sales practices. Sales quotas were eliminated effective January 1, 2017.

1. Senior Management:
   1. What motivations did senior management have for the situation described?
   2. When senior management tried to stop false accounts what were they trying to do beyond stopping false accounts?
2. Employees:
   1. What was there motivation for the sales quotas?
   2. Some employees were promoted and some were fired for not making the numbers, for employees not making the numbers, why did they stay working there until they were fired?
3. Customers:
   1. How would customers feel when they didn’t want a new credit card or a new account?
   2. Would you be willing to talk to the Securities and Exchange Commission (SEC) or FBI about fraudulent activities and why?
4. Securities and Exchange Commission (SEC):
   1. SEC & FBI are both powerful Government agencies and they can levy fines and others penalties if they can prove fraud. They would gather information from Customers and Employees before meeting with Senior Management. What would be the nature of their first conversation with Senior Management?
   2. When the SEC discovered there still were false accounts being setup after the first meeting, what do you think the SEC should do next?
5. Wrap-up questions: Since this is an Ethics case where both personal interests are present and Ethic principles (what is right or wrong) reflect on the following questions:
   1. Was positive intent displayed by any stakeholder?
   2. Was there negative intent?
   3. What are the potential costs to Wells Fargo – monetary and otherwise?
   4. What do you take away from this case?