Harvard Law & Policy Review

Is This What Accountability Looks Like?

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By Edward Nasser*

Wells Fargo & Co. Chairman and CEO John Stumpf resigned this week, effective immediately, under intense public pressure for the bank’s sales-tactics scandal and his inelegant handling of the fallout. Mr. Stumpf won’t receive a severance package, relinquished $41 million in unvested equity awards, and agreed to forgo salary during an independent investigation led by the board. He will not receive a bonus either. Timothy Sloan, whose most recent role was as Wells Fargo’s president and chief operating officer, replaced Mr. Stumpf as CEO.

Carrie Tolstedt, the divisional senior VP who supervised the roughly 6,000 retail branches where the wrongdoing took place, also stepped down. In July, she announced her plans to retire at the end of the year, but instead chose to resign along with Mr. Stumpf. Ms. Tolstedt agreed to forfeit $19 million in unvested equity awards.

The abrupt resignations of Mr. Stumpf and Ms. Tolstedt came as a surprise. As recently as two weeks ago, the Wall Street Journal reported that “there are no signs” either contemplated stepping down. Both the resignations and scale of the equity clawbacks are notable. For comparison, when the London Whale scandal broke in 2011, the board of J.P. Morgan & Chase decided to halve CEO James Dimon’s compensation from $23.1 million to $11.5 million, but did not formally claw back any equity. Mr. Dimon also kept his job.

Still, many lawmakers and progressive commenters continue to be skeptical of the bank’s response. Wells Fargo agreed to pay local and federal regulators $185 million to settle the claims ($100 million to the CFPB, $50 million to the city and county of Los Angeles, and $35 million to the Office of the Comptroller of the Currency) but as is common in civil cases of corporate malfeasance did not admit wrongdoing. Some, like Representative Maxine Waters (D-CA), expressed concern over the hiring of Mr. Sloan, noting that he too might be culpable in the recent scandal.

The resignations and clawbacks only came after an extraordinarily sharp line of questioning by one of the banking industry’s most vocal critics, Sen. Elizabeth Warren (D-MA). Sen. Warren repeatedly rebuked Mr. Stumpf during the September 20th Senate Banking Committee hearing on the matter. She questioned why, at the time, no high level executive had resigned despite the bank firing, over five years, 5,300 mostly low-level employees related to the scandal. Sen. Warren also urged criminal accountability for the executives in charge, arguing that the only way to effectively reign in Wall Street excess is to hold high-level employees liable. The U.S. Attorney’s Office for the Southern District of New York has launched its own investigation into the scandal, but prosecutors have not decided between criminal or further civil charges.

Like many white-collar investigations, the final resolution in the Wells Fargo matter will likely leave critics somewhere between unsatisfied and downright furious. Mr. Stumpf sold $61 million worth of Wells Fargo shares in the month prior to the public announcement of the regulatory settlements, a move sure to infuriate the public but unlikely to result in any legal consequences Further, the settlement with the CFPB leaves much to be desired, requiring that the bank identify and refund customers affected by the fraud—but not if it is “impracticable” to do so. (The carefully worded settlement, the largest in the agency’s history, also fails to mention the word “fraud” a single time).

Mr. Stumpf and Ms. Tolstedt have faced some penalties for their roles in overseeing one of the most egregious examples of corporate abuse in recent memory. Time will tell if either will have to face the criminal justice system.

*Edward is a 2L at Harvard Law School and an Online Editor for HLPR.