• Breaking News

    DISCUSSION OF POLITICS AND ECONOMICS WITH FORAYS INTO PHOTOGRAPHY AND ASTRONOMY

    Search This Blog

    Friday, September 9, 2016

    Massive Fraud At Wells Fargo Is Just More Criminal Wall Street Conduct

    It is hard to go a day without reading about another corporate criminal caught in the act - what are they teaching these people in business schools these days? Yesterday's huge story is about the massive fraud committed on a firm-wide basis at Wells Fargo. Wells Fargo employees apparently set up millions of unauthorized bank and credit card accounts since 2011 in an attempt to boost fees and rack up sales figures to earn more money. Employees would set up phony accounts linked to existing accounts, even creating bogus PINs and email addresses for those accounts. Those new accounts would count toward the employee's sales targets, earning them bonuses. But on top of that, the employees then illegally and without authorization transferred money from the valid original account into the newly opened account. This caused the valid account to be overdrawn and then be charged for insufficient funds by the bank. An estimated 1.5 million of these bogus accounts were opened up at the bank in the last 5 years. In addition, employees opened up over half a million credit card accounts without the customer's knowledge or approval. These cards racked up over $400,000 in various fees as well. Wells Fargo states that over 5,300 employees were fired over the last few year for improper behavior. And it is clear that these illegal actions were widespread throughout the company. It is impossible to believe that levels of senior management could not have been aware of the problem. It also brings into question the whole account opening procedures and protocols at the bank which are subject to strict anti-money laundering (AML) rules. The unauthorized transfers of funds is also a clear violation of securities law. Wells Fargo has been ordered to pay $185 million in fines and restitution by the CFPB. Wells Fargo net income for the second quarter of this year slumped to around $5.5 billion just to show you how pathetic this fine is, despite it being the largest fine the CFPB has ever levied.

    In my experience on Wall Street, the violations here are egregious - violating AML rules and moving customer money without authorization. But it was apparently business-as-usual at Wells Fargo. It is becoming more and more apparent that many of these large financial firms are in many ways ongoing criminal enterprises. How long must this go on before we either create serious enough punishment for all levels of management when this illegality occurs or simply force the institution to close down.

    2 comments:

    1. The interesting thing about this Wells Fargo case is that it probably is a good example of corporate inefficiency as well as corporate greed. From what I understand many of these accounts were created and then closed soon after. Many customers didn't even know an account had been created. But the sales staff used it to meet quotas and earn bonuses. In other words, Wells Fargo was paying out bonuses but not making anything in fees or interest on many of these accounts. It only came to light because of those cases where the fraudsters didn't covert their tracks well and customers did wind up with fees.

      My view is that this kind of fraud (i.e., clearly illegal) is nothing compared to the activities and practices that are morally and ethically fraudulent, but actually legal. That's where all the big bucks are.

      ReplyDelete
      Replies
      1. I totally agree with your point that what they get away with legally is even worse. And most of that is totally against the spirit of the laws they get around legally. Which is why we should really make them pay when they due something that is so clearly and blatantly illegal. They looks at these pathetic fines as merely the cost of doing business.

        Delete