Literature Search and Review
The Wells Fargo account fraud scandal is a continuing disagreement created due to formation of millions of deceptive savings and checking accounts. This was done with no any prior permission. This created a worldwide fury and resulted in an enormous penalty imposed different regulatory bodies, together with the Consumer Financial Protection Bureau (CFPB), of $185 million dollars. It was resulted due to the illegal activities inside the company and faced multiple civil and criminal suits (Avalos, 2017).
The business scandal in the recent time has created awareness in the mind of consumers. Wells Fargo customers started noticing the fraud when saw an unexpected fees and in receipt of unanticipated credit or debit cards. Preliminary reports held individual Wells Fargo branch liable for the problem. It was due to the sale of multiple financial products associated with it. The purpose behind the conspiracy was due to the incentives associated with the financial products. The branch stated that the problem actually occurred due to an accumulated pressure from the management to sell finanacial products.
They took moderately few risks in the year 2008 during the widespread Financial Crisis. This has led to a stable image on Wall Street and in the economic world. Their steady status was flecked by the extensive fraud reporting. This scandal has resulted in the resignation of CEO John Stumpf. Further, U.S. Senator Elizabeth Warren was appointed to conduct investigation into the bank (Corkery, 2017).
The aim of the research is to find out the major sources behind the scandal and the reasons behind the scandal. The research objective is to find out the effects of Scandals and the role played by the CEO and the board members.
- The objective is to derive the ongoing impact of the Wells Fargo Scandal on the employee and the shareholders.
- The impact of the scam over the management and the steps undertaken to minimize the impact on the economy.
- To provide readers with a concrete knowledge pertaining to increasing scam and the role of investors in it
- What was the reason behind the Well Fargo account Scandal?
- What was the role of the board and the CEO John Stumpf in the scandal?
- How does the scandal impacting the organization and the banking authority?
- What are the impact of The Well Fargo account Scandal on the Employees and the management?
The Fargo scandal appeared a board that offered weak management to the organization. John Stumpf served as the chief executive officer of the bank when the scandal was originally originated. Stumpf acted as his own boss while the synthesis of the two posts. MSCI GMI Analyst, in an independent assessment has very well stated that the Director was not efficient enough to balance the management (Giel, 2017). This has particularly distressing known the bank’s description by the government. This has been important for financial institution with to scare the global fiscal structure (Egan, 2017).
Wells Fargo countered over domination risk by in disagreement while its chair was certainly not self-governing, the board did mark as an influential lead director, Stephen Sanger, with responsibility similar to that of John Stumpf. As per the report in 2016 filings with the US Securities and Exchange Commission it is inferred that the organization paid Sanger $40,000 to work as a Lead Director. In a research done by the Yale School of Management in 2011, the banks are paying their board seven times more than a lead director. The outsiders excavate into revelation to understand that governance risks are higher than Wells Fargo’s assurance (Wieczner, 2017).
Assessment of Literature Review Findings
With a weak leadership it was very well expected that Wells Fargo board obtained diminutive act in the instantaneous wake of the humiliation to oblige responsibility. There was an acute responsibility where the senior-most executives were thereby required to be fired (Koren, 2017).
S&P 500 corporations demonstrate that nearly half characteristic divide board chairs, with half of that followers being independent non-executives. It does not denote that hidden emergency is appropriate to facade where solitary persons clutch together top jobs. This does propose that a market may have lofty risks of an over powerful CEO and underpowered board (Foroohar, 2016).
The Shareholders have an authority to mark risks and alter equations. The shareholders have a control over the research tools and possession to induce more effectual check and balance at public companies. The failure was caused due to the Fargo ineffective governance policies (Levaux, 2017).
Every year under the leadership of John Stumpf, all the investors have chosen on an announcement at Wells Fargo’s annual meeting to begin checks and balances. Suggestion was to fit a disconnected, non-executive chair of the board. Each year resolution has gone down to overcome considerable margins due to the vote of Warren Buffett. Their largest investors are Blackrock and Vanguard which are the second and third largest shareholders of the company. These funds have facilitated torpedo comparable autonomous chair scheme at other US companies. This has taken up governance planning that is ordinary in the world (Bomey and McCoy, 2017).
Blackrock and Vanguard have opposed autonomous chair at Wells Fargo and other firms. It led to increasing concern about extreme leadership risk. The mutual funds characteristically reveal their viewpoint undergrowth normal investors who trust their resources to such representatives. The funds need not to explain their concern about declaration such as self-governing chairmanship at a fastidious corporation on behalf of their grassroots investors (Mount, 2016). This has become decide information funds that are used to weigh or certainly to find disagreement of attention that have persuaded the outcome. It has recommended commercial interests linked with mutual fund voting and investment decisions (White, 2017).
At present there is no cause behind mutual funds are not able to adopt measures that more clearly line up their performance as a shareholder with the interests. This has an adjoined interest of millions of saver who manage $15 trillion of their savings. The Funds that are associated with the bank for instance could disclose continuous votes they cast. In that case the investor can log onto their accounts & can check real time whether their agent subsists by their money to watch next to threat at companies like Wells Fargo. There is a necessity to devote more assets to watch dogging companies. The Funds need to be more public concerning governance attitude, appealing input from investor and specialist regarding the decision making. They seem to both well stranded and self-governing. The necessities were increasing in order to recover trust in the financial system core on steps such as to ensure ordinary savers to drive both long-term routine and fairness.
Wells Fargo Account Fraud Scandal
Employees in the organization were buoyant to sell credit cards for customers without any approval. They were using their own contact information when substantial requirements to stop clients from determining the fraud. Those Employees creating deceitful checking and savings accounts have occasionally concerned in the movement of money out of rightful accounts. This has created in an additional product as a part through a procedure recognized as “pinning”. They were setting he customers pin to “0000”. Bankers were capable to organize customer accounts and to register them in series such as online banking (Kouchaki, 2016).
At times there were Measures in use by people to assure the employment of the dispossessed fee-accruing fiscal products. The Reports regarding inaccessible objectives and unsuitable behavior by employees to manager didn’t give end result in altering the expectations (Blake, 2016).
In December 2016, there were revelation that the employees of the bank as well as issued superfluous insurance policies. All this includes policies by Prudential Financial and renters’ insurance policies by Assurant. The scam was bought under the highlight by the three whistle-blowers, prudential employee. Due to the scandal Prudential fired employees and has proclaimed to seek compensation from Wells Fargo.
Due to the scandal the bank fired about 5300 employees from 2011 and 2016 due to fake sales. This has suspended sales allocation at its entity undergrowth after the declaration of the fine in September 2016. The bank’s CFO has stated that they have invested $50 million to get better failure to notice in person branches. Stumpf has established accountability for the troubles in September 2016.
Stumpf was asked to be presented before the Senate on September 21st, 2016. Before the hearing, he was asked to relinquish $41 million in stock options not yet been vested by the company’s board. He resigned on October 12th. Sloan has designated that there has been inner anxiety for his resignation. It was done in the best faith of the organization and he had chosen to do so in the interest of Wells Fargo. In November 2016, the Office of the Comptroller of the Currency levied penalties against the bank by eliminating provisions from the September settlement (Levine, 2016). This has resulted in OCC adding new limitations. The bank acknowledged supervision alike to so as to use for worried or bankrupt financial institutions. During the whole saga, Stumpf has acknowledged disapproval for approving previous head of retail banking Carrie Tolstedt. The bank has performed investigation into retail banking practices for many years at the time. In April 2017, the bank uses a claw back provision in Stumpf’s contract to obtain support of $28 million of his earnings. Additionally Tolstedt was forced to sacrifice salary that she denied due to non-involvement (CNN Money, 2017).
Causes of the Scandal
This resulted significantly in reduced profitability in the first quarter due to release of the scandal. There was an increase in the expenses due to Payments made to both lawyers and outside firms. In January 2017, the bank proclaimed closure of over 400 branches out of an approximate 6000 branches by the end of 2018. The bank proclaimed to cut costs through investment in technology while declining “sales organization”. The bank modify up efficiency-ratio goal from 60 to 61 in 2017(Tippett, 2016).
Due to the scandal about 85,000 of the accounts open acquired fees totaling to a sum of $2 million. The Customers’ credit attains were also expected to hurt fake accounts. It is eventually important that the bank is not able to avoid clients from following legal action to open an account authorization to enter into private arbitration with the bank. The case has resulted in bank paying off $110 million to clients having accounts opened in the names without any permission granted in March 2017. The amount that was paid was used to repay for the damages to those affected.
There was an intense pressure on the employees to work. Those who were working with Wells Fargo found intense pressure in the organization with a high as 20 products a day. There was a high level of stress that led to harsh panic attacks. Several pointed out that calls with no reaction on ethics resulting in the extinction of the employee making the call.
Few employees were finding difficulty in employment at other banks. The bank has issued U5 documents to departing employees. It included the proof pertaining to any misconduct or unethical activity by the bankers. Wells Fargo questioned on various ground regarding defamatory U5 documents to those who were reported branch-level malfeasance. This has indicated that there has been complicit behavior regarding creation of unwanted accounts. Additionally there was no proper process for appealing a defamatory U5. There was no proper process to file a court case alongside the corporation issue the U5 ((Levaux, 2017).
Wells Fargo formed a special inner group to help employees not involved in the scandal. In April 2017, Timothy Sloan has stated that the bank would rehire 1000 employees wrongfully terminated or had quit in objection of deception. She further emphasized over the point to rehire those who didn’t participated in the scandal to create fake accounts. This was declared by the bank shortly after the announcement made regarding the claw back of income from both Carrie Tolstedt and John Stumpf.
Effects of the Scandal
Conclusion
To conclude, the scandal has created a widespread urgency in the banking organization. The bank following the Los Angeles Times article has ended nominal efforts to improve the company’s sales culture. In spite of alleged improvement there was a fine of $185 million in early September 2016 due to creation of some account. 1,534,280 unauthorized deposit accounts and 565,433 credit-card accounts were made between 2011 and 2016. There was approximation that was released in May 2017 placing fraudulent accounts to a total of 3,500,000.
References
Avalos, G. 2017. Wells Fargo fake accounts scandal appears far bigger than previously thought, attorneys say. Online. Available at: https://www.mercurynews.com/2017/05/12/wells-fargo-bogus-account-estimates-balloon-hit-3-5-million/ Accessed on: 5 July 2017
Corkery,M.2017. Wells Fargo Struggling in Aftermath of Fraud Scandal. Online. Available at: https://www.nytimes.com/2017/01/13/business/dealbook/wells-fargo-earnings-report.html Accessed on: 5 July 2017
Giel,D.2017. Wells Fargo fake account scandal may be bigger than thought. Online. Available at: https://www.cnbc.com/2017/05/12/wells-fargo-fake-account-scandal-may-be-bigger-than-thought.html Accessed on: 5 July 2017
Egan,M.2017. Wells Fargo still faces over a dozen probes tied to fake account scandal. Online. Available at: https://money.cnn.com/2017/03/31/investing/wells-fargo-investigations-fake-account-scandal/index.html Accessed on: 5 July 2017
Wieczner,J. 2017. Here’s How Much Wells Fargo’s Fake Accounts Scandal Is Hurting the Bank. Online. Available at: https://fortune.com/2017/01/13/wells-fargo-fake-accounts-scandal-closing-branches-earnings/ Accessed on: 5 July 2017
Koren, R J. 2017. Wells Fargo overhauls pay plan for branch employees following fake-accounts scandal. Online. Available at: https://www.latimes.com/business/la-fi-wells-fargo-pay-20170110-story.html Accessed on: 5 July 2017
Levaux, J.2017. Senators Ask Wells Fargo CEO to Explain Alleged Fraud Cover-Up. Online. Available at: https://www.thinkadvisor.com/2017/02/01/senators-ask-wells-fargo-ceo-to-explain-alleged-fr Accessed on: 5 July 2017
Foroohar, R.2016. Why the Wells Fargo Scandal Really Matters (Hint: It’s Not Just the Fraud). Online. Available at: https://www.latimes.com/business/la-fi-wells-fargo-pay-20170110-story.html Accessed on: 5 July 2017
Bomey, N. and McCoy, K.2017. Wells Fargo clawing back $75.3 million more from former execs in fake accounts scandal. Online. Available at: https://www.usatoday.com/story/money/2017/04/10/wells-fargo-compensation-clawback/100276472/ Accessed on: 5 July 2017
Mount, I. 2016. Wells Fargo Fake Accounts Scandal May Go Over 10 Years. Online. Available at: https://fortune.com/2016/10/12/wells-fargo-fake-accounts-scandal/ Accessed on: 5 July 2017
White,G. 2017. The Toll of Wells Fargo’s Account Scandal. Online. Available at: https://www.theatlantic.com/business/archive/2017/04/wells-fargo/523578/ Accessed on: 5 July 2017
Kouchaki, M.2016. How Wells Fargo’s Fake Accounts Scandal Got So Bad. Online. Available at: https://fortune.com/2016/09/15/wells-fargo-scandal/ Accessed on: 5 July 2017
Blake, P.2016. Timeline of the Wells Fargo Accounts Scandal. Online. Available at: https://abcnews.go.com/Business/timeline-wells-fargo-accounts-scandal/story?id=42231128 Accessed on: 5 July 2017
Levine, M.2016. Wells Fargo Opened a Couple Million Fake Accounts. Online. Available at: https://www.bloomberg.com/view/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts Accessed on: 5 July 2017
CNN Money, 2017. Wells Fargo ups customer settlement to $142 million over fake accounts. Online. Available at: https://wtvr.com/2017/04/21/wells-fargo-customer-settlements-increase-fake-accounts/ Accessed on: 5 July 2017
Tippett C E.2016. This Is How Wells Fargo Encouraged Employees to Commit Fraud. Online. Available at: https://newrepublic.com/article/137571/wells-fargo-encouraged-employees-commit-fraud Accessed on: 5 July 2017
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