This story is the fourth chapter in a five-part series:
Late in the afternoon of Oct. 2, 2013, a veteran Los Angeles Times reporter named Scott Reckard was in the paper's downtown newsroom when an editor asked him to check out a tip from a Wells Fargo branch employee who'd recently been fired.
It didn't seem like a terribly promising lead. Companies fire workers who violate their rules all the time. But Reckard returned the phone call, and the former worker, who had been stationed at a branch in the San Fernando Valley, started to tell his story.
The bank had fired a bunch of employees for the sort of misconduct that was being encouraged by higher-ups, the former worker said. He spoke of an open secret at Wells Fargo: Cheating to meet sales goals was the path to success.
That evening, Reckard published
The article quickly got the attention of Michael Bacon, Wells Fargo's chief security officer at the time. Around 20 people forwarded the online version to him. When Bacon read it, he hoped that it would help build support inside the bank for addressing the sales misconduct problem. He recalls telling his boss, Human Resources Director Hope Hardison: "What's being reported is not false and not an exaggeration."
Bacon also remembers telling executives at the bank that the 30 terminations were part of a bigger investigation in Southern California that was still ongoing. "So that's when they all started putting the brakes on it and trying to do damage control," he said.
The crux of that effort, in Bacon's view, was not about getting to the root of the widespread sales misconduct. Instead, he felt, it was about finding ways to limit the number of employee terminations, since firings hurt the bank's brand and reputation.
In early November 2013, Tim Sloan, who was then the bank's chief financial officer,
In her response to Sloan, Callahan stated that the short-term goal was to "limit the damage" of further terminations. She also expressed hope that "the LA Times story doesn't become national." Sloan wrote back: "I am pleased you are involved."
Around the same time, a new internal committee was formed. Known as the Core Team, its members included representatives from human relations, employee relations and the retail banking unit, as well as company lawyers who focused on employment issues.
The Core Team's purpose was to ensure consistency in the process of firing employees, according to a
The Core Team reviewed individual cases of misconduct — with the goal, according to Hardison, of ensuring that employees were being treated appropriately, as well as to try to understand the root cause of the sales misconduct problem. But the Core Team struggled to actually get to the root cause of the problem, Hardison said.
Bacon felt that the root cause of the problem was blindingly obvious. Low-paid branch workers were facing intense pressure to meet their sales goals. If they failed to do so, they might face negative repercussions, including losing their job.
Bacon saw the creation of the Core Team as part of the effort to limit the number of employee terminations. When an investigation resulted in multiple firings, Bacon's team wrote a summary, and the Core Team held phone calls to review the specific circumstances. "They thought maybe we were being overzealous," Bacon said.
Bacon was initially optimistic about the Core Team, even though it was hampering the investigative process. He thought it would inform executives in other departments about the extent of the bank's sales misconduct problem. And the committee's work did make people aware that the blame belonged not with low-level employees, but further up the organizational pyramid, he said.
Ultimately, though, the Core Team had little effect, according to Bacon. "Nothing really changed," he said. "We were doing good investigations. This was egregious misconduct. And the committee didn't stop anything. We still ended up terminating them. It just slowed the process down."
In December 2013, Hardison, who was then the HR director, and Callahan, the chief administrative officer, took another step aimed at minimizing the number of firings. They decided to pause the limited amount of monitoring of sales misconduct that the bank was doing.
There had never been any monitoring for a variety of schemes that Wells employees used to boost their sales numbers. But a team inside the retail banking unit had recently been looking for instances where employees changed customers' phone numbers, as well as for a practice known as simulated funding, in which employees transferred money to an unauthorized customer account in order to meet the criteria necessary to receive sales credit for opening an account. The monitoring for simulated funding uncovered employee misconduct in Southern California that led to the terminations reported by the LA Times.
Both Hardison and Callahan later testified that they paused the monitoring because they didn't want to keep firing employees without understanding the underlying cause of their misconduct. The premise seemed to be that employees shouldn't be fired as a result of something the bank itself was causing them to do.
Hardison
Even as Callahan and Hardison talked about wanting to understand the root causes, low-level employees continued to face sales pressure. "We're in defense mode, we're Band-Aiding," Bacon said in an interview.
The decision to pause monitoring, which came around the time that Reckard of the LA Times published
"And you know, to me that equated to turning a blind eye," Bacon said. Around this same time, Bacon began to sense that Hardison was trying to distance herself from the sales misconduct problem. "I wasn't invited to a meeting. I wasn't asked for data from her, or anything. And I felt the avoidance of the subject was a red flag," he said.
Hardison declined to comment for this article. A person familiar with her thinking, who spoke on condition of anonymity, took issue with Bacon's contention that Hardison was trying to step away from the spreading sales abuse problem.
This person pointed to Hardison's actions at an April 2014 meeting of the bank's Enterprise Risk Management Committee. At that meeting, Hardison was critical of the retail banking unit's efforts to fix the sales misconduct problem, arguing that the retail bank didn't appear to have really done anything, according to the 2017 report by a committee of Wells Fargo's board.
In July 2014, a team within Wells Fargo's retail banking unit resumed monitoring, but with an unsettling twist. Even before the monitoring was paused, the team had only been flagging serial misbehavior. But when the monitoring resumed, the thresholds for what conduct got reviewed became even looser.
Every month, roughly 30,000 Wells Fargo employees engaged in behavior that was a red flag for simulated funding, according to
"The proactive monitoring only detected the worst of the worst offenders," the bank's regulators wrote in a
The revised standards troubled Bacon, whose job-related stress had become so intense that his wife was worrying about his health. "It literally felt unethical that our thresholds were as high as they were," Bacon said. Two months later, he left Wells Fargo with a severance package.
Then in May 2015, the Los Angeles City Attorney's Office
Afterward, in his 2015 performance evaluation of retail banking head Carrie Tolstedt, CEO John Stumpf
As Wells executives continued to look for ways to limit employee terminations, they began to focus their attention on fidelity bonds, which provided insurance coverage to the bank for losses arising out of dishonest or fraudulent conduct by employees.
Under federal law, Wells was required to purchase fidelity bonds for its employees. But employees were no longer eligible to be bonded if they committed a dishonest act. The upshot was that employees who opened accounts without customers' authorization — or otherwise acted dishonestly in an effort to meet the sales goals — had to be fired.
Starting more than a decade earlier, Wells Fargo executives had looked into making changes involving the fidelity bond as a way to limit the number of employee terminations. They finally succeeded in April 2016.
The company's law department, which was led at the time by General Counsel Jim Strother, obtained an exception from the bank's underwriter. Under the exception, Wells was no longer required to fire employees who engaged in dishonest conduct as long as the financial loss to the bank was $5,000 or less.
Fake accounts. Executives who only wanted to hear good news. Tens of billions of dollars in damage. As the bank's chief security officer, Michael Bacon spent years raising concerns about rampant sales abuses. In exclusive interviews, he details how the bogus-accounts scandal unfolded — and argues that it could have easily been stopped.
Bacon heard about what happened from former colleagues. He felt that the focus on the fidelity bond was misplaced: The cases were still being investigated, and employees who were found to have acted dishonestly were routinely fired without reliance on the fact that they were no longer eligible to be bonded.
Bacon saw the episode as another example of a corporate culture that sought to treat symptoms rather than address the underlying cause of the problem.
But inside the bank, a misguided consensus had emerged. If not for the fidelity bond, this view went, "Maybe we wouldn't have terminated those people in Los Angeles, and maybe they wouldn't have gone to the Times. And this would have been avoided," Bacon said. "That was the lore."
Read the other installments in this series:
