Wells Fargo: wtf?! (…why the fraud?!)









Read time: ~5 minutes

Like the rest of the business world, I have watched the Wells Fargo “account-gate” saga unfold during the past few weeks.  In case you somehow missed it, thousands of Wells Fargo employees were engaged in fraudulently opening up deposit and credit card accounts in customers’ names without their knowledge or consent.  More than 2 million fraudulent accounts were opened over a five-year period.  Wells Fargo fired 5,300 employees for this—the equivalent of 5% of the staff working in the bank’s branches.

Much ado is being made about how and why this happened: another scandal in the seemingly scandal-plagued financial services industry. Congress is involved, having set up an investigation and hearing into the fraud.  Wells Fargo’s CEO has been summoned to Capitol Hill to testify.  The Department of Justice says it too is now investigating.

While much has been written about the presumed profit motive that drove this PR and public trust catastrophe, Wells Fargo executives insist that this wasn’t about the bank incentivizing employees to take advantage of unsuspecting customers for the bank’s benefit.  These fake accounts reportedly generated just $2.4 million for the bank.  To put that into perspective, Wells Fargo generated more than $22 billion in total revenue in 2015.  So this effort pretty much yielded bubkes for them.

Which leads me to my question:  wtf?! (…why the fraud?!).  Investigations, hearings and hand-wringing aside, the answer to this question really isn’t complicated.  Nor is it deeply profound (or terribly shocking).

As the wise Jedi Master Yoda said, “The fear of loss is a path to the dark side.” Apparently at Wells Fargo, the fear of (job) loss loomed large for employees who were under tremendous pressure to sell eight “solutions” (new checking accounts and other products) to their customers every day.  Some reported that their managers held meetings four times a day to check the status of these sales and that they were yelled at when they didn’t hit their targets. In a September 13th appearance on CNBC, John Shrewsberry, Wells Fargo CFO had this to say: “These bad practices were not a revenue-generating activity. It was really more at the lower end of the performance scale where people apparently were making bad choices to hang on to their job.” (Emphasis added.)

Under the threat of loss, people make all kinds of bad decisions.  In fact, psychologist and behavioral economist have a term for this: Loss Aversion.  Put simply, for human beings, the fear of loss has a stronger emotional impact than the expectation or possibility of gain.  We are more likely to engage in unethical behavior to avoid losing something than we are to gain the very same thing.  The fact of the matter is that most workers in this country are living paycheck to paycheck. A system like the one Wells Fargo had in place brought together a perfect storm of factors that could only lead to widespread unethical behavior.  This isn’t meant to excuse the individual workers from accountability for their actions. It’s merely meant to address why it happened.  The question of individual accountability and why Wells Fargo couldn’t anticipate this disaster before it unfolded are questions that would take up an entire blog post on their own.

Now, many of you are likely saying, “but somebody had to make money off of this”.  And, of course, you are right.  The kind of pressure that was rained down upon employees to meet these goals emanated from a source that had something to gain.  Maybe the bank didn’t make any money but someone (or perhaps many people) did.  Well, according to some reports, at least one person is walking away from all of this having earned  $93 million in compensation as a result of sales targets being hit.   So yes, greed is always lurking somewhere in these situations.

Following the Boss’s Orders Could Land You in Jail

Reading time: ~4 minutes
Video runtime: ~4 minutes

What if you went to work tomorrow and your CEO asked you to do something that you believed to be wrong. Would you do it? No?

Let’s say that what you are asked to do is misrepresent the financial health of the company. Still no?

Let’s throw in that the misrepresentation is supposed to be temporary and is merely a “technical” misrepresentation. You’ll be “checking Box A instead of Box B” on an “unimportant form”. The company will correct the “error” in the near future. It’s necessary to make the misrepresentation now in order to avoid triggering a financial default which would lead to huge negative outcomes for the business. And, it’s guaranteed that the company will have everything it needs very, very shortly to be in financial compliance. It’s really just a timing issue, nothing more. Are you still at no?

OK, now let’s add that it’s bonus time. You’re expecting a nice, sizable bonus. You’ve earned it. You worked very hard for it. You are planning to use that money to pay off some of the debt that has been hanging over your head like the Sword of Damocles. But if the company experiences a financial default, there will definitely be no bonus. You will also be your CEO’s least favorite person. Probably not a good spot to be in when it comes to future bonuses….or job security. How about now, still no?

Perhaps your answer is still no, but I’ll bet you know a lot of people who would shift to yes. After all, they would say, what’s the harm? No one is getting hurt. It’s a timing issue, right?

At some point in our professional careers, many of us will likely encounter a situation in which we are asked—perhaps told—to do something we believe to be wrong or even illegal. Most of us are not prepared for this when it happens. This lack of preparation enables us to fall prey to rationalization—our own and that of anyone else who may be attempting to coerce us to act. Rationalization is the means whereby good people do bad things. It is the road down which many good people have traveled and found at the end an orange jumpsuit bearing their new name—a prison ID number.

Think this could never be you? Consider this: 80% of individuals convicted of white collar crimes are first time offenders. Many are moms and dads. Some coach our children’s little league teams and others are community volunteers. Most would describe themselves as good people and would be described by others as good people. And yet, they ended up being described by the penal system as an inmate.

An example of one such individual is a financial professional named Harold. Harold was a dutiful employee who served as Vice President of Finance at a hedge fund. One day, Harold’s boss asked him to create a spreadsheet showing the status of promissory notes owed to the fund by one of its investments. He asked Harold to indicate in the spreadsheet that the notes had been paid in full when, in fact, they had not. Harold was asked to pass this spreadsheet along to one of the hedge fund’s investors when it was completed. Harold complied.

Not long after, the hedge fund collapsed. The fund had been invested almost exclusively in promissory notes issued by a company that had been engaged in a massive Ponzi scheme. Those promissory notes listed in Harold’s spreadsheet were notes owed to the hedge fund by the company that perpetrated the Ponzi scheme. That company owed the hedge fund a lot of money—more than $200 million. Once the Ponzi scheme was discovered, the company collapsed which in turn led to the collapse of the hedge fund.

Harold lost his job. After some months, he found a new one and began to move on with his life. A little over a year later, the Feds came knocking.

Harold was arrested and charged with one count of conspiracy to commit wire fraud. The government’s case against him rested on that spreadsheet. Even though Harold did not know a Ponzi scheme was taking place, and even though the Ponzi scheme had been taking place for some time before he created that spreadsheet, the government asserted that Harold’s spreadsheet enabled the Ponzi scheme to continue. Harold had knowingly, falsely indicated that the promissory notes had been paid. If it had been clear to the hedge fund’s investors that the notes were not being paid, they may have been able to discover the fraud sooner. In the charging documents, the government acknowledged that Harold had made this false assertion at the behest of his CEO. They also said that didn’t matter.

Harold didn’t believe that he should be held criminally liable for this but faced with long odds against winning at trial and the enormous financial expense he would incur defending himself, he accepted a plea bargain. He was sentenced to 366 days in prison. Harold had worked at the hedge fund for just 15 months. He had an annual salary of $150,000. He worked hard and did what was asked of him. His compliance netted him the loss of a year of his life and a permanent tag: white collar felon.

Video Caption: Harold reflects on his experience.

So what would you have done? Would you have complied? It can be easy to say no now, knowing the outcome of this situation, but the best protection against going down a path like this one is to prepare yourself before you are confronted with the situation. One way to prepare yourself is to develop a personal code of conduct. Review it often. Post it in your work area where you can see it throughout the day. Use it as a guide in your decision making. It can also be helpful to identify a code buddy, someone who can help you work through a difficult decision.

Plan out how you would respond in a situation in which you felt pressured to do something you thought was wrong. What would say? How would you say it? What actions would you take? Would you excuse yourself from the room to give yourself time to think? Who would you talk to?

Being placed in a situation in which you are pressured to do something you believe to be wrong is akin to being in an emergency situation. In an emergency such as a fire, your odds of surviving increase significantly when you have a plan for how to respond. So to in an ethical emergency. Your very best chance for making the right decision rests on having a plan for how you will respond before the situation occurs.


Interested in learning more about Harold’s story? Watch Helios Digital’s Crossing the Line: Following the Boss’s Orders, Episode 4. For a very limited time, this episode is available to be viewed for $1.99. You can access the episode through the Helios Digital online store here.