As the Wells Fargo fraud scandal continues to unfold, the issues involved are becoming clearer and the lessons that can be learned more apparent. The basic facts seem to be well-known. John Stumpf, Wells Fargo's Chairman and CEO, together with other bank executives, decided that they could increase the bank's profits by cross-selling its products. The program was characterized by the catch phrase "eight is great," which referred to Wells Fargo's goal of having each customer have eight accounts with the bank. This strategy was seen as a way to replace the bank's lost growth with an additional source of revenue.

Wells Fargo placed a huge amount of emphasis on its retail employees pushing customers to open new accounts, setting aggressive and arguably unrealistic goals. Tellers and bankers who meet those were rewarded with bonuses, while those who did not were disciplined and terminated. Numerous former employees have spoken out about how unfairly they were treated when they were unable to meet the goals set by the bank. They have described an extremely high-pressure sales culture that was unreasonable and toxic.

Wells Fargo employees opened between 1.5 million and 2 million fake accounts for existing customers without their knowledge or consent. In order to facilitate that, fake email addresses and PIN numbers were created, Money was transferred from existing accounts to open the new ones. As a result of this fraud, customers incurred hundreds of thousands of dollars in fees as a result of these fraudulent accounts. The credit rating of each of the customers for whom fraudulent accounts were opened was affected.

After a lawsuit was filed against Wells Fargo in California, the bank seems to have hired a consulting firm to investigate the allegations. As a result of that investigation, 5,300 employees were fired for opening fraudulent accounts. Various regulatory agencies leveled fines totaling $190 million against Wells Fargo for this massive multi-year fraud against its customers. But to put that in perspective, in the 2nd quarter of 2016 alone, the bank reported $5.6 billion in profits. So the fines leveled against Wells Fargo have been accurately characterized as "paltry" and a "rounding error." Equally disturbing is the fact that as thousands of lower-level employees were fired, the corporate executives responsible for the scheme wound up making millions in profits from it. Carrie Tolstedt, the head of corporate banking described by CEO Strumpf as “a standard-bearer of our culture” and “a role model for responsible, principled and inclusive leadership” will walk away with $124.6 million. Those sorts of payouts demonstrate why corporate executives responsible for oversight were all too eager to look the other way. So much for corporate accountability.


1. The corporate culture of a sales organization must balance the need for sales and profits with the moral and ethical responsibilities owed to its clients and customers. When a company champions a "profits at all costs" approach, it won't be long before employees start cutting corners to make money. In this case, more than 5% of employees in the bank's retail stores were involved in this fraudulent behavior.

2. It is hard to imagine a most trust-based business than a bank. Customers trusted Wells Fargo with their hard-earned money. That represented savings intended for purposes such as to send kids to college, pay for family vacations, finance home purchases, and pay for retirement. At every level, Wells Fargo failed to fulfill its obligations to those customers.

3. The reasons for the failures at Wells Fargo can be accurately summed up by the graphic posted at the top. At every level, those responsible for oversight and monitoring of these programs was provided with a strong financial incentive to not notice the massive fraud that was occurring under their noses. Every individual in the chain of command was profiting from the aggressive cross-selling program. So they had a strong incentive to stay quiet and cash their inflated paychecks. There must also have been a tremendous amount of peer pressure to remain silent. In addition to endangering one's own paycheck, speaking up would also endanger the bonuses being awarded to co-workers, supervisors and direct reports. The risks of moral hazard in such an environment are apparent. There is no credible case to be made that corporate executives did not know what was happening. There is simply no way that 5300 employees can open a couple of million accounts and that would escape notice.

4. Customers at Wells Fargo who noticed that something was amiss were prevented from being able to take legal action to address their concerns. As with other banks, Wells Fargo requires that its customers sign arbitration agreements when they open accounts. Those agreements require that customers pursue any grievance through private arbitration and prevent customers from filing class-action lawsuits. As a result, each customer would need to notice a problem, hire an attorney, and pursue his rights independently and without access to the court system. Without litigation being filed, Wells Fargo was able to prevent widespread public knowledge of what was happening and keep government regulators at bay for far longer.


1. A responsible company that takes its ethical duties to its customers seriously can never embrace a sales/profits at all costs approach. Doing so encourages employees to value profits (and their own bonuses) over the company's customers. Once that happens, the corporate culture will view customers as potential sales targets to be exploited rather than as people to be valued or relationships to be nurtured. It is then a short trip to where Wells Fargo now finds itself.

2. Front-line employees need to be taught about their duties to their customers. Managers need to ensure that those employees are meeting those obligations. Upper management needs to make sure that managers are doing their jobs. Auditors need to make sure that sales goals are being met without cutting corners or violating the trust customers have placed in the bank. Training needs to continually reinforce that taking advantage of customers to make profits is not an appropriate or acceptable way to do business. A sales-based incentive system needs to include a variety of safeguards and internal controls to protect against abuses. Executive compensation should never be tied exclusively or even too heavily to short-term profits.

3. Congress needs to take a hard look at placing restrictions on arbitration agreements. While such provisions make sense in a variety of contexts, here they seem to have helped to mask the abuses and allowed them to continue. In civil litigation, fraud must be plead with heightened particularity, requiring more specificity than other claims. So it would seem to make sense to exempt fraud claims from arbitration clauses. If prospective Plaintiffs can plead fraud, they should be allowed access to the court system and given a chance to prove their claims.

4. No one should be allowed to profit from a company's fraud upon its customers. To the extent possible, the profits Wells Fargo made from its fraudulent scheme should be ascertained and the bank should be forced to disgorge those profits. Any corporate executive, manager, or employee should be forced to return any profits made as a result of any fraud. Any bonuses paid should be clawed back by the bank. The pool of money that results should be used to make customers affected whole. Any excess funds should be used to fund state and federal regulatory agencies to prevent similar fraud in the future. The employees most responsible for this mess should be fired and investigated for possible criminal charges.

Conclusion: Companies must do a better job of regulating themselves and state and federal governments must do a better of making sure they do. For this fraud to go undetected for so long, multiple regulators dropped the ball. Controls must be put in place to prevent this from happening again.