But will the scam penalty go far enough?
Wells Fargo has been fined $185 million for creation of a whopper of a scam: Installation of 1.5 to 2 million phony deposit and credit card accounts for “new products” for existing account holders without their knowledge. WF also charged fees. It’s been going on for five years. *
Account holders did not notice—and were never told—when relatively small amounts were transferred from their existing accounts to new accounts in their names. WF insiders were manipulating consumer accounts so top management would think that the “new accounts” showed sales goals were being met. The target audience was top management.
Wells Fargo is currently in the minimalist phase of Crisis Management: Pay and say as little as possible, move on and hope the story dies. It fired 5,300 WF people accountable for the scam. But WF will not reveal whether any top execs were fired.
There are follow-up issues for the press and the presidential candidates to hotly pursue:
Why did press and media coverage leave out tax deductibility? The fines are deductible as a “cost of doing business.” Press coverage for fines involving corporate wrongdoing still rarely describes how fines like these turn into huge tax deductions. Check the New York Times and Financial Times articles cited below: Both did excellent reporting but omitted that WF will pay less the $185 million. Congress helps—on a bi-partisan basis—by blocking the twice-proposed No Tax Write-Offs for Corporate Wrongdoing Act.
Does anyone believe no top WF execs knew? Really, for five years 5,300 employees were part of a secret enterprise that top management missed? If so, shouldn’t they be fired for not knowing? Regulators have more work to do. WF is stonewalling.
Why did WF stock go up when the story broke? Because Wall Street was relieved. Firing thousands of employees cuts the WF cost of doing business. The fine is tiny in proportion to its size and will not harm profitability of WF. No top WF exec is headed for the pokey. Wall Street yawned. Candidates for the presidency stayed “on message.” And so it goes.
* The most exceptional reporting on this scam is the opinion piece by Adam Davidson entitled, “How Regulation Failed With Wells Fargo.” It’s in The New Yorker’s September 12 Daily Email Newsletter at this link:
Also see the articles in The New York Times, “Bank Is Fined For Setting Up Sham Accounts” by Michael Corkery (9 Sep 2016) and the Financial Times, “Record fine for Wells after staff set up secret accounts to hit goals” by Alistair Gray (9 Sep 216). The NYT said 1.5 million sham accounts were created, the FT said over 2 million.