The Justice Department investigation of Wells Fargo is likely to be an important test case of new guidelines that encourage the agency to target individual employees rather than just a firm as whole.
Justice is still smarting from criticism after it failed to prosecute any high-level executives in the wake of the financial crisis. As a result, Deputy Attorney General Sally Yates wrote a memo last year that said the most effective way to combat corporate misconduct is to hold individuals accountable.
That, former prosecutors say, is what the Justice Department will try to do when it examines whether top executives at Wells were aware that thousands of employees were creating phony accounts.
"To date, there have not been very many cases in which the department has demonstrated that it does intend to hold high-ranking corporate individuals responsible," said Sara Lord, a partner at the law firm Arnall Golden Gregory and a former New York assistant U.S. attorney. "This would represent a significant instance in which we will be watching the application of the Yates memo with great interest."
W. Warren Hamel, who chairs the investigations and white-collar defense group at the law firm Venable, agreed that the Justice Department will view Wells Fargo through the prism of the memo.
"The question has been, is DOJ serious about Yates?" Hamel said. "Ultimately, if the evidence uncovered supports prosecution of high-level individuals, I think Yates makes that much more likely."
The Wells case stands out because thousands of individuals were involved in a widespread practice of illegally opening accounts. Wells said it has fired 5,300 employees over a five-year period for opening 1.5 million unauthorized deposit accounts and 565,000 credit card accounts without customers' knowledge.
Wells agreed to pay $190 million in fines and restitution in a regulatory settlement with the Consumer Financial Protection Bureau, the L.A. City Attorney's Office and the Office of the Comptroller of the Currency.
Settlements typically mean a company has made peace with the government. But the subpoenas, news of which was revealed nearly a week after the enforcement action, indicate that the regulatory investigation was either not a coordinated effort or the Justice Department was late to the issue.
The subpoenas could target the bank or specific individuals or both for either criminal or civil actions.
"It sounds to me like a pretty easy case," Hamel said, "because employers are responsible for the actions of employees. The issue is finding the highest individual officers and making them the target of a criminal investigation, and that is much harder."
The Yates memo also said that companies like Wells Fargo cannot obtain credit for cooperating with the government unless they identify employees and turn over evidence against them.
This could be particularly problematic in the case of Carrie Tolstedt, a senior executive vice president and head of Wells' community bank division, who announced her retirement in July. Wells has said Tolstedt's departure was unrelated to the settlement.
Prosecutors will be looking not just for email exchanges about the bank's sales culture but also at departure agreements with executives, which might include anti-disparagement language that restricts executives like Tolstedt from providing information to law enforcement, attorneys said.
The Wells case has sparked widespread public outrage in part because the bank has not identified any high-level executives who have been fired. Wells' CEO John Stumpf, who is expected to testify at a Senate Bank Committee hearing on Tuesday, has blamed rank-and-file employees for acting on their own.
"There's clearly been a great deal of outrage over the lack of accountability," Lord said. "There is an increasing desire on the part of the public to hold individuals accountable for corporate acts, and not limit individual accountability to lower levels, but to trace the responsibility back to its highest source."
The Wells case comes as the Justice Department is under renewed pressure to make an example of individuals. Sen. Elizabeth Warren, D-Mass., wrote a letter Thursday to a Justice Department watchdog, saying "the inability of the DOJ to prosecute" executives requires its own investigation.
"The DOJ' s failure to obtain any criminal convictions of any of the individuals or corporations … suggests that the department has failed to hold the individuals and companies most responsible for the financial crisis and the Great Recession accountable," Warren wrote in the letter, sent to the Justice Department's Office of the Inspector General.
"The DOJ record of action on these individuals, nearly six years after Justice received the referrals, is abysmal," wrote Warren, adding, "This failure requires an explanation."
It also may be difficult to prosecute Wells executives without showing that the company benefitted from the phony accounts. Many of the accounts produced no added revenue for Wells though it is unclear how much they may have contributed to bonuses of employees or executives.
Another challenge is that while there may be explicit sales goals for employees to meet, that does not necessarily mean executives were encouraging employees to skirt the law.
"The direction coming from the top is typically to go make our business targets and do whatever you have to," Hamel said. "They're not exactly saying go break the law, but once it gets translated down two or three layers of hierarchy, it can translate into a green light."
Compliance and audit personnel also may face prosecution if they knew thousands of accounts were being opened by employees and did nothing about it.
The Yates memo acknowledges that it can be difficult to determine if someone possessed the knowledge and criminal intent necessary to establish guilt.
"This can be particularly true when determining the culpability of high-level executives, who may be insulated from the day-to-day activity in which the misconduct occurs," Yates wrote.
Ian McKendry contributed to this article.