Six years before the Wells Fargo fake-accounts scandal broke, two retail bankers warned the federal government about the company’s branch sales practices.

Yet instead of investigating the two employees’ complaints, the Occupational Safety and Health Administration discussed their allegations with the bank and did not interview the bankers themselves, who had sought protection under federal whistleblower laws.

The mishandling of the two cases, detailed in documents and interviews with former OSHA officials, raises questions about the agency’s treatment of whistleblowers throughout the financial services industry. OSHA is the first stop for anyone seeking whistleblower protection under the Sarbanes-Oxley Act, but the agency has well-documented problems handling whistleblower cases.

"OSHA really let these whistleblowers down," said Benjamin Edwards, an associate professor of law at the University of Nevada, who teaches whistleblower securities law. "If OSHA had done a diligent investigation, there's a good chance that Wells Fargo would not have spiraled so far out of control."

Under the Sarbanes-Oxley Act, OSHA is supposed to protect whistleblowers from employer retaliation even if they turn out to be wrong. But with the two Wells Fargo whistleblowers, OSHA closed the cases in 2010 based on a conversation with the bank's lawyer — who was misidentified by OSHA in the final report as representing the whistleblowers.

"There's multiple violations that deprived these two people of any opportunity for justice," said Darrell Whitman, the former investigator on their cases in the Department of Labor's Whistleblower Protection Program under OSHA. He added, "OSHA's withdrawal was improper and the case[s] should be reopened."

Whitman himself was fired from OSHA in 2015 for a litany of alleged offenses, including unauthorized release of government information. While at the agency, he says, he tried to inform then-Labor Secretary Tom Perez of his allegations of misconduct.

Representatives for OSHA declined to comment on Whitman's assertion. Given that most of the two ex-employees' claims were rejected in a later lawsuit brought by the whistleblowers against Wells, a bank spokeswoman said, "This case was fully heard."

However, substantial problems exist with that lawsuit as well, according to a prominent whistleblower expert who says the former bankers have grounds to reopen it.

OSHA unilaterally closed complaints filed by two Wells Fargo whistleblowers based on a conversation with the bank’s lawyer, Baldwin Lee, who was misidentified in the final report as representing the whistleblowers.
Blunder
OSHA unilaterally closed complaints filed by two Wells Fargo whistleblowers based on a conversation with the bank’s lawyer, Baldwin Lee, who was misidentified in the final report as representing the whistleblowers.

The following account is based on OSHA and federal court documents and dozens of interviews by American Banker and Financial Planning.

Yesenia Guitron and Judi Klosek, who worked at Wells' St. Helena, Calif., branch, were fired after speaking up about the fraud. They filed complaints with OSHA in May of 2010, claiming the bank retaliated against them and demanding compensatory damages.

Guitron, a former retail banker, says nobody at OSHA ever contacted her nor Klosek to interview them. Klosek — who went on a medical leave after experiencing chest pains in the middle of the alleged retaliation, according to her complaint in the federal lawsuit — could not be reached for comment.

In September 2016, Guitron and Klosek were largely vindicated in their central allegations when Wells admitted to opening at least 2 million accounts under clients' names without their permission and paid $185 million in regulatory fines. The revelations sparked a national uproar and drove the CEO out of his job.

These developments came too late for Guitron and Klosek, despite the fact that they had followed Wells' internal ethics rules by reporting the fraud, and counted on federal whistleblower protection laws to shield them.

'SHAKE HER SKIRT'

In addition to filing claims with OSHA, the women filed a wrongful-termination suit against Wells Fargo in federal court in August 2010.

Although the suit largely failed, to read the complaint is to glimpse Wells' coming regulatory problems.

In it, Guitron says she began complaining in March of the previous year about a co-worker's practice of opening accounts under clients' names without their knowledge. Pressure to sell accounts at their branch eventually grew to the point where her manager, Pam Rubio, allowed other managers to tell Guitron to "shake her skirt" and to contact her "many boyfriends" to attract attention and open new accounts, the complaint says.

Finding no management allies at her branch, the complaint continues, Guitron elevated the matter to Greg Morgan, a regional manager, who sat down with Guitron in late November 2009.

Morgan began by saying that he was "fully aware of her complaints," but that she "should not report other employees' activities as it would be 'bad' for her employment with Wells Fargo," according to the lawsuit.

Rubio fired Guitron in early 2010, the whistleblower suit says. Wells contends she was not fired, but walked off the job.

Neither Rubio nor Morgan responded to calls and emails.

In 2012 U.S. Judge Claudia Wilken of the Northern District of California dismissed all of Guitron and Klosek's claims, except those Klosek brought for discrimination. Klosek later settled her discrimination dispute with the bank for undisclosed terms.

Guitron lost her case and a subsequent appeal, despite Wilken's finding that Guitron had an "objectively reasonable" belief that Wells had committed fraud in opening client accounts.

Yet, Wilken concluded that Wells was still justified in firing her for failing to meet her sales quotas. Today, Wells refers to those same sales quotas as "unethical" and has abandoned them.

"They didn't meet their sales goals because they didn't want to cheat," said the women's attorney in the case, Yosef Peretz.

While upheld on appeal, the judge’s decision looks flawed in the wake of the successive scandals that have engulfed Wells Fargo, said Jason Zuckerman, a whistleblower attorney unconnected with the Guitron and Klosek cases.

Wilken's "ruling suggests an utter failure to apply the correct standard," Zuckerman said. By law, Wells had to prove with "clear and convincing evidence," a high standard, that it would have fired Guitron even if she had not blown the whistle. The judge declined to respond to questions.

Tom Devine, one of the country's foremost whistleblower experts and a lawyer for Whitman, says that due to Wells' admission, in its 2016 settlement with regulators, that it committed fraud, Guitron and Klosek have grounds to reopen the case.

"If the independent justification [for the firings] is illegal, it's invalid," Devine says. "I would jump right into court."

Upon learning that she may have cause to reopen the case, Guitron said she may pursue it: "That's what I've been saying all along. Logically, [the ruling] was impossible."

In any event, the whistleblowers might have fared better in their original effort in court had OSHA investigated their cases and uncovered evidence to back up their charges.

'DECLINED TO PROVIDE A DEFENSE'

Whitman, the former OSHA investigator, has filed a lawsuit of his own with an independent federal agency, the Office of Special Counsel, against OSHA and his former manager there, Joshua Paul. The documents from the Guitron and Klosek cases are part of that suit. In it, Whitman accuses both OSHA and Paul of routine collusion with corporate defendants.

Paul could not be reached, but has said he would not comment on the matter.

In an OSHA investigation, after initial intake procedures are complete, the first step is to take a statement from the whistleblower, according to the department's Whistleblower Investigations Manual.

However, in his five years as an investigator, Whitman says, the common practice under Paul was to start an investigation only after a company had been informed of the substance of the complaint and delivered a "statement of position," essentially a first form of defense.

Sarbanes-Oxley regulations do not require companies to respond to whistleblower complaints, and Wells didn't in the women’s cases: “Respondent declined to provide a defense,” says the final report on the Guitron matter. Yet this inaction should not have stopped nor slowed a federal investigation.

Wells Fargo never mounted a defense to OSHA complaints filed by two whistleblowers, according to the former investigator who wrote the documents to close their cases.
The blow-off
Wells Fargo never mounted a defense to OSHA complaints filed by two whistleblowers, according to the former investigator who wrote the documents to close their cases.

"If the respondent fails to make a timely response," Sarbanes-Oxley regulations stipulate, "OSHA will proceed with the investigation." In the Wells Fargo whistleblowers’ cases, OSHA did not.

Companies have at least one disincentive to respond to OSHA complaints: The whistleblowers may use evidence produced in an OSHA investigation in lawsuits they file later — a provision Guitron and Klosek were unable to take advantage of.

Rather than urge investigators in OSHA's San Francisco office to pursue cases, Whitman said, Paul would tell them, "Don't worry about SOX cases, they'll kick out." When a whistleblower sues in court, it can lead to a closure, or "kick out,” of an OSHA investigation under the agency's standard practices.

However, OSHA isn't supposed to sit on cases hoping that frustrated whistleblowers will turn to the court for help, according to Whitman and other former investigators.

Had OSHA proceeded according to Sarbanes-Oxley regulations, it would have given Wells 20 days to respond to the whistleblowers’ May 2010 complaints and an extension of another 10 days, Whitman says. Another document from Whitman's lawsuit shows that a Wells lawyer did contact OSHA on July 7, 2010, to request an extension of the deadline to respond to the Klosek case.

Yet the case file does not show any further contact between OSHA and Wells on the matter until shortly before the case was closed, Whitman says. When asked why Wells failed to follow with a defense after requesting an extension, a spokeswoman said the bank “responded to all requests made of us. To imply that there was ever any impropriety is simply untrue.”

MISTAKEN IDENTITY

In closing Guitron’s and Klosek's cases, OSHA cited a conversation with a lawyer named Baldwin Lee, who was identified in the final report as their lawyer, and who said they would be withdrawing.

In fact, Lee was and is an attorney for Wells. Whitman says it was his own mistake. He says that Lee didn't disclose during their phone call that he worked for the bank, but forwarded him a document showing the women had filed suit. Whitman says he wrongly concluded Lee represented them.

Reached by phone in his San Francisco office, Lee said he never represented himself as counsel for the whistleblowers.

Wells provided documents showing earlier communications between it and Whitman in which Lee is identified as the bank's lawyer. Whitman says they were pro forma documents drawn up not by him, but by others in his office, informing the bank that he had been assigned as the new investigator.

Whitman said he suspects Paul put him on the case precisely because of his lack of experience at the time as an investigator, making it unlikely that he would know enough to challenge Paul. The cases were among the first Whitman handled upon taking the job in 2010 and, he says, Paul gave them to him with the instruction to close them.

Without proper training, Whitman says, he didn’t grasp the full significance of the women’s decision to specifically omit Sarbanes-Oxley claims from their federal lawsuit in order to keep their OSHA cases alive, as required by law. That made them unlikely candidates for voluntary withdrawal.

Whitman adds that only years later did he understand the significance of what he'd done in following Paul's direction.

Darrell Whitman, former OSHA investigator
Bottleneck?
OSHA claims “it doesn’t have enough money and is over-burdened with complaints,” says former investigator Darrell Whitman. “The reality is that, if they followed protocols on these investigations, they would be getting them out within the time limits, qualified whistleblowers would be protected … and the agency wouldn’t have a backlog.” Photo by Ramin Mazur

"The pattern with Wells not responding and OSHA not investigating was so widespread there is circumstantial evidence that there was some sort of 'understanding' between OSHA and Wells that these complaints wouldn't be investigated," Whitman said.

When asked if any such understanding existed, Lee, the bank’s lawyer, said, "The answer is no."

OSHA has never said how many such Wells complaints it received. Another regulator, the Office of the Comptroller of the Currency, has said it failed to act on 700 such Wells complaints. However, any employee seeking protection as a whistleblower under Sarbanes-Oxley must first file a complaint with OSHA, making it the likely first repository of choice for many financial industry whistleblowers.

CASE BACKLOG

OSHA's problems have been well-documented by outside reports that go back nearly 30 years.

Absent settlements, less than 2% of whistleblowers receive merit findings in OSHA investigations, despite the fact that laws are intended to protect whistleblowers even when they are wrong.

The agency's high caseload — a perennial and well-known problem in the whistleblower program — isn't primarily to blame, Whitman and the other investigators say.

OSHA says "it doesn't have enough money and is over-burdened with complaints,” Whitman said. “The reality is that, if they followed protocols on these investigations, they would be getting them out within the time limits, qualified whistleblowers would be protected … and the agency wouldn't have a backlog."

The agency has issued at least three favorable rulings for large-bank whistleblowers this year — all many years after the former employees initially sought protection. It ordered Wells to reinstate whistleblowers in two cases.

The rulings followed investigations by Financial Planning and American Banker into OSHA's Whistleblower Protection Program last year and this year.

Studies also show that OSHA fails to adequately train its whistleblower investigators.

In 2009, a year before Guitron and Klosek filed their complaints, the Government Accountability Office said that "OSHA has done little to ensure that investigators have the necessary training and equipment to do their jobs."

The GAO report also says that problems with the whistleblower program go back "more than 20 years."

OSHA critics say things have only gotten worse, not better.

And Whitman says there was no way for him to determine what happened in the cases after he presented the final documents to Paul.

Although OSHA's own rules require investigators like Whitman to sign final case documents (see the Whistleblower Investigations Manual), Whitman says Paul did not allow him to review nor sign them.

Another former investigator who worked alongside Whitman for Paul, former assistant U.S. attorney Susan Kamlet, also said Paul made a habit of not allowing investigators to sign their own cases.

"I was never asked to sign one of my final investigative reports," said Kamlet, who is supporting Whitman's case against OSHA with the OSC.

Guitron, a single mother of two who now manages residential properties in St. Helena, calls the OSHA revelations "frustrating."

"That case should have been as a win for me," Guitron says.

Yesenia Guitron, a former Wells Fargo manager in St. Helena, Calif., from 2008 to 2010
'Logically, it was impossible'
Yesenia Guitron lost her case against Wells Fargo and a subsequent appeal, despite a judge's finding that the former retail banker had an "objectively reasonable" belief that Wells had committed fraud in opening client accounts.

Her experience illustrates how companies ignore internal whistleblowers at their peril, says Edwards, the law professor.

The case is "particularly egregious because Wells Fargo has repeatedly been flagged for unethical practices," he said. "We had the account creation scandal. Recently we've also learned that Wells Fargo was signing people up for auto insurance that they did not need. One of the reasons that this second scandal is hitting Wells Fargo may be that it does not protect whistleblowers and it does not respond to internal whistleblower complaints. If Wells Fargo had taken these internal whistleblower complaints seriously, it would have saved [itself] from the catastrophic consequences it has experienced. "

When asked to respond to this analysis, a Wells Fargo spokeswoman reiterated the bank’s position:

The claims of these two individuals were conclusively resolved years ago and final judgment was entered by the court. This occurred after the individuals chose to pursue their claims in civil court through their attorney. Wells Fargo promptly provided a full response and engaged in the full discovery process, and the federal judge issued a final decision on the merits. This also included a review by the federal court of appeals that affirmed the district court judge. The employees’ attorney did not file any further appeal. Their purported retaliation claims are closed.

'JOURNEY TO RESTORE TRUST'

"Let's talk about Yesenia Guitron," Sen. Jeff Merkley (D-Oregon) said to Wells’ then-CEO John Stumpf during his testimony on the Senate Banking Committee on Sept. 20, 2016.

After witnessing the creation of fake accounts, Merkley said, Guitron "went to her trainer, then she went to her manager and she was basically … pushed very hard to shut up in all kinds of different ways. So you say, ‘well, the employee could have gone to somebody.’ She did and eventually she filed a whistleblower suit and why did Wells Fargo say that that [lawsuit] was not legitimate?" he asked. "I'll just save you the time. The answer is because Wells Fargo said, 'We fired her because she did not meet her quotas.' "

Blinking repeatedly, Stumpf said nothing and let Merkley continue: "This was a systemic problem that you benefited from enormously, the bank benefited from enormously and you are scapegoating the people at the very bottom.”

Less than a month after the hearing, during which a Republican senator referred to the Wells whistleblowers as heroes, Stumpf retired and Wells clawed back $41 million of his compensation.

Although Wells fired 5,300 employees who engaged in the fraud, the bank says it has hired 1,000 people back, including some who had left because they were uncomfortable with its sales practices.

Still, many bankers in positions of authority who've been accused of ensuring the fraud continued apace not only kept their jobs, but received promotions.

Pam Rubio, the manager who Guitron said allowed managers to tell her to "shake her skirt" to attract clients, was promoted to the private bank and now works with high-net-worth clients in Rutherford, Calif. Greg Morgan, the manager who allegedly told Guitron that reporting fraud would be bad for her, was promoted to president of the San Francisco market out of Santa Rosa, Calif., in March 2015. Wells did not respond to questions about their promotions.

Today Stumpf’s successor as CEO, Tim Sloan, tells employees the bank is on a "journey to restore trust." To that end, it released the following statement about its current approach to whistleblowers:

Wells Fargo does not tolerate retaliation against team members who report their concerns. Our non-retaliation policy makes clear that no team member may be retaliated against for providing information about suspected unethical or illegal activities or possible violations of any Wells Fargo policies. If team members ever see activity that is inconsistent with our Code of Ethics and Business Conduct, we encourage them to report it immediately, and if a team member thinks that they or someone else has been retaliated against for reporting an issue, they should report it as soon as possible to our EthicsLine, HR Advisor, Employee Relations, or their manager. Wells Fargo will take measures to protect team members from retaliation.

However, a bank spokeswoman says its policy was substantially the same in 2009 when Guitron and Klosek reported witnessing fraud. "We are committed to providing a retaliation-free workplace where all team members feel comfortable raising their hand and expressing a concern,” the spokeswoman added last week. "Anything less is unacceptable."

Some outside the bank are drawing their own conclusions: It "makes sense that executives who are willing to tolerate the illegal behavior underlying internal whistleblower complaints are also willing to tolerate further illegal behavior in retaliating against those whistleblowers," the Houston-based whistleblower law firm Kriendler & Associates says on its website in soliciting clients.

“Talk’s cheap," says Devine. To Wells, he says, "If you’re serious, offer jobs back to the … whistleblowers.”

Ann Marsh

Ann Marsh

Ann Marsh is a senior editor and the West Coast Bureau Chief of Financial Planning. Follow her on Twitter at @Ann_Marsh.