OCC seeks additional $11M from three former Wells Fargo executives

Federal regulators are seeking millions of additional dollars in penalties from three former Wells Fargo executives, escalating the legal fight over culpability for the company’s phony-accounts scandal.

The Office of the Comptroller of the Currency now wants $10 million from former community banking executive Claudia Russ Anderson, up from the $5 million it had previously sought. The agency is seeking a $7 million penalty from former chief auditor David Julian, up from $2 million before, and $1.5 million from onetime executive audit director Paul McLinko, up from $500,000.

The proposed increases came to light in recently filed court documents and are the latest salvos in the OCC’s response to one of the most consequential U.S. banking scandals in recent years. Wells Fargo has paid billions of dollars in penalties after admitting that its employees opened millions of accounts without customers’ permission between 2002 and 2016.

Bloomberg

“The unauthorized activities were so systemic and pervasive that even senior leaders could not escape sales practices misconduct. The former Chief Risk Officer’s wife received two unauthorized debit cards,” the OCC wrote in one recent legal filing. “Employees even opened unauthorized accounts for customers’pets.”

The cases against former Wells Fargo executives represent one of the largest efforts ever by U.S. regulators to punish individual bankers. The OCC has reached settlements with former CEO John Stumpf, who agreed last year to pay a $17.5 million penalty, and six other individuals whose monetary payments totaled approximately $8.5 million.

The cases against Russ Anderson, Julian and McLinko, which were filed 15 months ago, are currently scheduled to go to trial on Sept. 14 in Sioux Falls, S.D.

The OCC, which is Wells Fargo’s primary regulator, alleges that the three individual defendants failed to perform their duties and responsibilities adequately, which contributed to systemic problems at the bank.

In recent court filings, the OCC asked Administrative Law Judge Christopher McNeil to recommend that the three cases be resolved in the agency’s favor, arguing that there are no genuine disputes about material fact that would require a trial. Any such ruling would have to be ratified by the comptroller, and the defendants could subsequently file an appeal in federal court.

Administrative law judges are appointed by federal agencies and are typically not bound by the same standards as federal courts. There’s a perception in some quarters that the administrative law system gives agencies a home-field advantage in adjudicating cases, but other observers argue that there is no evidence of bias.

The three former Wells Fargo executives are expected to file their responses to the OCC soon.

Their attorneys have called the agency’s allegations unfounded. An expert witness hired by lawyers for one of the defendants has also noted that the OCC was aware since at least 2010 of sales integrity issues at Wells Fargo.

“This fact indicates that risks associated with sales integrity simply were not viewed with the same lens that was applied years later after the issues drew media attention,” David Abshier, managing director at the consulting firm Berkeley Research Group, wrote in a report that was filed in November.

When the OCC filed administrative charges against the three former Wells executives, the agency noted that it could decide at a later date to increase the penalty being sought.

Such increases are sometimes characterized as a “trial penalty” — harsher repercussions for defendants who choose to contest the allegations rather than agreeing to a settlement up front. But in recent legal filings, the OCC argued that the three defendants’ alleged misconduct more than justifies the higher proposed penalties, which the agency said are meant to serve as a deterrent to future violations by individual bankers.

The OCC also stated that the larger payments it is seeking are below the statutory maximum of $50,334 for each day that the alleged misconduct occurred.

The agency wrote that Russ Anderson, the former community banking executive, earned approximately $14 million in compensation between 2004 and 2016, while Julian earned $16.3 million between 2012 and 2016 and McLinko received compensation totaling nearly $3 million during that same five-year period.

While the cases against those three defendants have been proceeding, there have been no publicly available legal filings recently in the OCC’s case against Carrie Tolstedt, who headed community banking at Wells Fargo until 2016. An OCC spokesperson declined to comment, and Tolstedt’s lawyer did not respond to a request for comment.

In addition to facing the possibility of a $25 million from the OCC, Tolstedt is also being sued by the Securities and Exchange Commission.

That civil suit, filed in November, alleges that Tolstedt misled investors about Wells Fargo’s cross-sell ratio, which the bank regularly cited as evidence of its sales prowess. Tolstedt’s lawyer has said that her client acted appropriately at all times.