One of the biggest white-collar crime cases of the year has been the Wells Fargo case, where it was revealed that the bank issued secret credit cards without customer consent, set up fake email accounts to sign customers up for online banking and even formed sham accounts, discovered by customers only after fees began accumulating. In September, Wells Fargo was fine $185 million in fines, with $100 coming from the Consumer Financial Protection Bureau, a recent formation in the financial oversight industry.
The huge fines and tarnished reputation are serious sanctions, yet many are calling for more. There is now a demand for the CEO of Wells Fargo, John Stumpf, to face criminal charges. Senator Elizabeth Warren, when grilling him before Congress, told him he should be criminally investigated.
Under the Responsible Corporate Officer Doctrine, it is possible that Stumpf could be charged and prosecuted if it is discovered that he should have known about the illegal activity and could have prevented it or corrected it. A corporation must be held accountable for criminal behavior, and, as the leader of the company, they should be held criminally liable for the corporation’s crimes. This doctrine is significant in that the prosecutor would not need to know that Stumpf knew anything – just that he should have known.
The prosecutor could prove this by showing he was somehow made aware of employees being retaliated against or terminated for refusing to make quotas by signing customers up for fake accounts without their consent. During the Congressional hearing, Stumpf denied any knowledge of this whatsoever, but some will find that difficult to believe.
Although about 5,300 employees were fired because of the scandal, no one has made much noise about whether these people could face criminal liability. Usually, anyone involved in a criminal enterprise will be liable for any criminal acts committed, as well as the crimes of the entire enterprise. Of course, it is feasible that the employees were acting under duress, given the fact that many were reportedly terminated for failing to follow the company line. This may not be enough to avoid criminal liability, but there does not seem to be much momentum for prosecuting these individuals – at least not yet.
It appears that Wells Fargo could face both state and federal liability. Former Attorney General Kamala Harris of California has subpoenaed information from Wells Fargo concerning the scandal, including whether employees improperly accessed servers to obtain customer’s personal information without consent.
Critics are reluctant to believe that any real criminal prosecution or justice will come out of this fraudulent act, though. The CPFB has kept its options open concerning the likelihood of criminal charges, but the Department of Justice is unlikely to pursue charges. The DoJ is the crucial agency, since the CPFB can merely refer cases to the DoJ for further investigation and prosecution – the CPFB has no independent power to launch its own criminal investigations. If past is prologue, it seems likely Wells Fargo will get off with simply a financial slap on the wrist: the $185 million fine is just 3.3 percent of the $5.6 billion net income Wells Fargo earned in a quarter this year.
Most of the cases involving extreme levels of bank fraud end in a deferred prosecution agreement. Essentially the DoJ has enough to issue indictments and being criminal prosecutions, but allows the bank to make certain reforms and pay a fine, and stay out of trouble, and the charges will eventually get dropped. The reasons why individuals are not nailed to the wall vary, but usually it’s because a criminal case against a top executive in a corporate bank is difficult to prove. The evidence doesn’t always point to the top executive, but rather middle-management types. The time and energy expended in attempting to convict the CEO of a major company may not be worth it in the end, particularly when the investigation itself is often most valuable to the DoJ. Subpoenas and depositions can lead to policies and practices that were widespread, and regulators can now look for a repeat of such an environment in an effort to prevent the same crimes from happening again.
What happens with Wells Fargo remains to be seen. While it might not recover its reputation or its customers it lost, the powers-that-be will also likely never see the inside of a jail cell.