I think Matt Levine's take on this is right on: https://www.bloomberg.com/view/articles/2016-09-09/wells-far.... Senior management wanted employees to do REAL cross-selling to make money, but the metrics were set so high that employees turned to fake accounts to meet the standard. The fake accounts did not benefit the bank in any substantial way:

So that's about 2.1 million fake deposit and credit-card accounts, of which about 100,000 -- fewer than 5 percent -- brought in any fee income to Wells Fargo. The total fee income was $2.4 million, or about $1.14 per fake account. And that overstates the profitability: Wells Fargo also enrolled people for debit cards and online banking, but the CFPB doesn't bother to count those incidents, or suggest that any of them led to any fees. Which makes sense: You'd expect online banking and debit cards to be free, if you never use them or even know about them. Meanwhile, all this dumb stuff seems to have occupied huge amounts of employee time that could have been spent on more productive activities. If you divide the $2.4 million among the 5,300 employees fired for setting up fake accounts, you get about $450 per employee. Presumably it cost Wells Fargo way more than that just to replace them.

It seems senior management set up a stupid employee incentive program, but were not intentionally involved in the fraud.

Matt Levine just shows that Wells Fargo wanted a paper trail showing that they told employees not to do this. The interesting question is, what happened when whistleblowers told them it was happening anyway? Apparently, the answer is that they fired the whistleblowers. That says everything about what Wells Fargo really wanted, as opposed to what they said to cover their asses. Remember, he's an industry insider with a bias.

Explain what exactly Wells Fargo upper management had to gain from the fake cards? They wouldn't generate real money for the company. The people who stand to benefit most are the individual employees.

I don't know the banking industry well so maybe there is some way for the company to make money off fake cards but I can't think of one. And because of that, I tend to believe that upper management really did not intend it to happen.

If you own stock in the company and this causes the stock to go up (even if the rise is artificially inflated) you can still make plenty of money.

Yeah but what about fake accounts would make the stock go up? Wouldn't it actually make the revenue per account go down which would seem to me to be negative indicator. But again, I don't know the banking industry.

Their stock price was heavily based on their high cross-selling metrics.

It's a short term bonus ploy, and the idea is it doesn't get found out while they're at the company Also a lot of head-in-the-sand doublethink too. Michael Lewis' book, and other in-depth reports about bankers' behaviour in the market / housing crash explains it nicely. Short term incentives for executives and moving jobs means that they aren't there when the chips are down.

Growth metrics

> The people who stand to benefit most are the individual employees.

And their managers, and their managers' managers, whose income depends on showing good numbers to the nth-managers.

> Apparently, the answer is that they fired the whistleblowers.

That's the major sin here.

I'm shocked - shocked! - to find that gambling is going on here!

For those that don't get the above reference https://www.youtube.com/watch?v=nM_A4Skusro

> The interesting question is, what happened when whistleblowers told them it was happening anyway? Apparently, the answer is that they fired the whistleblowers. That says everything about what Wells Fargo really wanted

It says everything about what the people in the loop of those decisions wanted, perhaps, but those people (at least, those for whom there is a known paper trail of them being in the loop) are probably several steps removed from the CEO. They also probably also maintained enough of a paper trail of the notional reasons that they were firing the people involved that, while its a reasonable inference from the association between whistleblowing and firing that there was an ulterior motive, it would be far from certain that that could be established to the degree necessary for that to the basis of criminal culpability.

This ignores that top management is also paid in large part with company stock and in the 5 years prior to this being discovered the stock doubled. One of the metrics that had investors excited was the increasing number of accounts which was publicly reported.

I would have an easier time believing this if the company had not retaliated against people who tried to complain internally.

They fired thousands of people for creating accounts without permission. It's hard to say they looked the other way.

It doesn't seem possible that 5000(!) employees did this and the CEO had not a clue.

Maybe they should have figured out that their incentive structures were wrong when they had to fire 5000 people over several years. But the very act of firing thousands of people shows that they were discouraging it, strongly.

Did you know that there's a reality tv show based on this premise?

Of course it is. In a company that size where employees work all across the country it's actually very hard for the CEO to find out about sth like this.

He can only create structures (e.g. internal audit team) that are powerful enough to detect it and report it to him.

There's still a duty of vigilance.

And IANAL but that's a tort, not a crime.

"Give a manager a numerical target & he will hit it, even if it means destroying the company to do so."

You're comparing apples and oranges. The CEO of a small internet company almost certainly has a hand in everything the company does. The CEO of a large corporation has no idea what the line workers are doing.[1] If a bunch of Yahoo employees had gone off and run as sex-trafficking site off Yahoo's servers, they wouldn't go arrest Marissa Mayer. Not because "lobbying" but because that would be stupid and unreasonable.

[1] I've done internal investigations at megacorps. When something shady goes down with line employees they hire teams of lawyers just to tell management what the heck is going on inside their own company.

When there's a couple of rogue employees I can understand. When there are millions of fraudulent accounts it starts to look like a policy or at least criminal neglicence.

And there are also the companies that are convinced of fraud like Deutsche Bank, but it's the company that pays a huge fine when the executives who were overseeing all this go unscathed.

I have worked in a bank and I know a lot of people there have no clue what's going on, but the fact that it's true does not mean it's a valid excuse. If I kill a pedestrian with my car I can not claim it's not my fault because I had my eyes closed.

I think it somewhat boils down to intention. In the case of Wells Fargo, opening fraudulent accounts couldn't have accrued any benefit for the bank. It seems more likely that it would have increased overall cost for the company. Yes, the fraud is attributable to stressing too much on reaching an upselling goal, but it's hard to imagine it's a thing that CEO would have wanted. Should we start punishing people for managerial oversight?

> opening fraudulent accounts couldn't have accrued any benefit for the bank

Actually, in the hearing Senator Warren tried to connect the fraudulent accounts to the stock price, which would have been a direct benefit for the bank:

> You squeezed your employees to the breaking point so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket. And when it all blew up, you kept your job, you kept your multimillion-dollar bonuses and you went on television to blame thousands of $12-an-hour employees.

http://www.nytimes.com/2016/09/23/business/wells-fargo-tests...

Senator Warren is really good at generating sound bites for people who have no idea about how companies work but are abstractly mad at them. The idea that WF would engage in systematic fraud to goose revenue by about $2.4 million is absurd (or add a bunch of accounts generating only that much in revenue--as if Wall Street analysts won't compute revenue per account).

Wells Fargo was touting its new account metrics to investors in addition to the typical revenue numbers. The idea being that if Wells Fargo is gaining that many new customers and new accounts, it would lead to a lot more revenue in the future.

Wells Fargo pushed its employees so hard to open accounts because there was a benefit to doing so.

Revenue growth isn't the only important metric here.

They created two million new accounts, letting them go to the market and tout demand for their banking services.

Having more accounts isn't automatically a good sign for the stock market. It's too easy for a bank to get accounts, you just offer people a sign-up bonus. The number of clients alone will usually not inflate the stock price.

That was my first thought, even before I heard what Warren had to say. IIRC, Lending Tree was doing something similar. People associated with the company were opening accounts with which to borrow or lend money in order to juice the books and report increased earnings.

http://www.bloomberg.com/news/features/2016-08-18/how-lendin...

My understanding is that the multiple accounts were an end run around the per-account limits on various fees.

You are talking about 5,000 current employees being fired and many employees who were fired for reporting it. If he didn't know, then he must not know other things about Wells Fargo that are equally important.

> You are talking about 5,000 current employees being fired and many employees who were fired for reporting it. If he didn't know, then he must not know other things about Wells Fargo that are equally important.

I'm sure that's the case, and I'm sure it's also the case for most CEOs of massive companies.

Wells Fargo has more than 250,000 employees and more than 6000 branches -- more branches than any other US bank. There is nobody who knows everything that is going on. It's just not possible.

The number of employees fired represents a tiny fraction of the total number of employees -- about 2% or less.

Then how does this spread around to all the branches if (way) upper management doesn't know? Does Suzy in Fl really spend her time chatting up Jackie in CA to get the scoop on all the D/L ways to cheat? They have a little IRC channel for duping WF management?

Because some fraction of people are cheaters. Just think of how many people you know who cheated in school. I'd say the number is 10% or higher. Some of those people became CEOs who continued to cheat, but many became low-level bank employees who continued to cheat.

And if you're being measured on how many accounts you create, and the system doesn't have checks to keep people from opening accounts without consent, it's not exactly hard for all the cheaters to figure out what to do. Again, think back to all the ways people cheated in school. You think they had to coordinate to figure out how to cheat?

The management in one branch likely socializes with the management in near-by branches. It spreads through drinks and "Yeah, it's dumb; we just do <sketchy behaviour> so we can get back to work".

Have you ever had a job? Have you ever had management insist upon some stupid metric or some deadline that just could not be met and they refused to hear about it?

People had to open new accounts or lose their jobs. Some people opened fake accounts to accomplish this. When they were found out, they were fired. Sounds like a horrible place to work, but the firings were proof that management didn't want this to happen, not some bizarro proof that this is what they wanted all along.

You don't need coordination to figure out how to game a system.

This is not quite right. They were pressured by managers to open fake accounts, fired for not making quotas if not, fired if they reported the practice, and then all fired once the government finds out and it blows up. Of course the senior management plays dumb and keeps their jobs.

They were not "all fired, once the government found out."

Wells Fargo confirmed to CNNMoney that it had fired 5,300 employees over the last few years related to the shady behavior. Employees went so far as to create phony PIN numbers and fake email addresses to enroll customers in online banking services, the CFPB said.

http://money.cnn.com/2016/09/08/investing/wells-fargo-create...

Making fake accounts is a pretty obvious solution to increasing cross-selling numbers. I'm sure almost all of the branch employees thought about it, but only some actually did it.

You get what you measure. You measure account creation, you'll get account creation. You measure legitimate account creation, and it's a different ballgame.

It's about 5% of US employees, concentrated in one part of the organization.

Closer to 2%.

Wells Fargo global headcount is about 250k. Less than half is in the US.

> If he didn't know, then he must not know other things about Wells Fargo that are equally important.

Yes, but establishing the former (which is a crime) as opposed to the latter (which is an internal business matter for Wells Fargo) is the tricky part.

The CEO gets credit and a lot of money when things go right so he should take blame when things go wrong.

Personally I think they could find out about a lot of wrongdoing if they wanted to.

The question wasn't whether he should take blame, but whether he should be criminally charged. Sounds a bit over the top - I'd rather see WF fined, and then the CEO sued by the shareholders, and forced to pay damages if proven he knew or should have known.

That's an okay opinion, but I'd like to see CEOs criminally charged and go to jail if it's proven that they knew or should have known what was going on.

He is the CEO. He should have known 5000 employees were engaging in fraudulent operations.

Wells Fargo has 265.000 employees. A CEO certainly has to make sure that there's internal oversight according to regulations and industry standards but it's not his job to personally go spying on people (try doing that on 265.000 employees) or implement the Wells Fargo Gestapo.

If it cannot be proven that he knew about it or encouraged this behaviour then he cannot be held legally accountable. It's like demanding the US president should go to prison because some CIA team somewhere does some really shady stuff that he doesn't know about.

Shareholders might still choose to fire that guy, but it's a choice they have, they do not have to if they are satisfied with his performance.

How come that people today lose their ability to reason as soon as bankers are involved? It's similar to the National Socialists reasoning when they blamed the Jews for everything bad "because they had the all money and controlled the world"

Who can then be held responsible when a big company commits criminal acts? Maybe they should arrest all people who opened those fraudulent accounts. All of them. Maybe that will be a deterrent.

But in general a CEO should have a duty to ask questions why a certain division seems to be doing well. Maybe it has to do with earnings targets that are simply unachievable? I see that in my own company. The top guys are setting shorter and shorter deadlines and in my view the quality of engineering suffers. Top management doesn't technically know when people are cutting corners but they could easily have listened to people that the demands are too high.

> Who can then be held responsible when a big company commits criminal acts?

My opinion: Anyone who took part in it either knowing it is illegal or even if the person should have known it is illegal considering his/her position.

Same goes for persons that didn't necessarily know about it but acted negligent or ignored standard procedures that are in place to prevent such a thing.

> But in general a CEO should have a duty to ask questions why a certain division seems to be doing well

Could be negligence, I don't know the specifics here. If it was then he has to be held accountable. But his head might roll in the end regardlessly as people always need a scapegoat, no matter if it's his fault or not. Yet when the government takes action it should not do so just to punish a scapegoat, they should punish because the person broke a law. (if the shareholders fire him even though it's not his fault I couldn't care less, it's their investment and they do not have to act rationally if they want to)

> My opinion: Anyone who took part in it either knowing it is illegal or even if the person should have known it is illegal considering his/her position.

As a general rule, we don't hold people criminally liable for simple negligence.

As a general rule, knowing that something is illegal isn't part of the required mental state, even for acts that require doing something "knowingly"; that usually refers to knowing the specific facts that make the act illegal, not knowing the law under which those acts are illegal.

I did not say "simple" negligence, that is determined by others who know the specifics of this case.

Criminal law makes a distinction between gross negligence (locking the doors to a busy club so people can't get out which then catches on fire and kills everyone), and ordinary negligence (securing a heavy thing in the air with just a knot that falls and kills someone). Even if someone "should have known," that is almost never enough for criminal liability.

Thanks I know, I said that I don't know the specifics and that others (lawyers) will have to decide on that.

Well the head of the Community Banking division should definitely have known. But she's being allowed to retire with her full financial package.

They fired 5000 employees because they were opening fake accounts. Wells found these people on their own and fired them.

In normal people world, this is proof that Wells was taking the problem of fake accounts seriously. (It also sounds like a horrible place to work, but that's a separate issue.)

>The CEO of a small internet company almost certainly has a hand in everything the company does. The CEO of a large corporation has no idea what the line workers are doing.

If that's the case they should be paid like the CEO of a small internet company. You take the money, you take the responsibility.

I agree. It doesn't have to be collusion, in fact, I can easily imagine that there's no large scale coordination, maybe just coordination in small 5-10 person teams. For any incentive scheme, there's going to be a subset of people trying to game it. Given that potentially tens of thousands of employees were presented with the same incentive scheme (the performance system), it makes sense that many people/small groups could independently create similar strategies.

I think it's made more concrete by thinking of how many times you've thought of an app, business, screenplay, etc. and realized later that a dozen others have had the same idea. I bet a dozen people in this thread independently sketched out an app like Uber/Homejoy/"AirBnb-for-X" at some point just based off having the common annoyance of taxi-finding or hiring help.

In standup comedy, this happens a lot because we're all living in 2016 so any joke about the election, Bradjelina, Game of Thrones or any other sufficiently public/widely-discussed topic will have dozens of people trying to make a joke off of it. I'd guess that the set of actions you can take in a 'corporate game' is more finite and structured, so it makes sense that thousands among tens/hundreds of thousands adopt the same strategy.

Logical answer right here. No conspiracy theories, for once.

It's not credible that C-level management were unaware. 5000+ employees doing the same thing, repeatedly, means collusion and coordination up the management hierarchy was taking place. Either internal anti-fraud controls failed, or this activity was actively ignored at management direction. At the very least, the C-level manager at the top of the organization that engaged in this fraud was responsible for a system failure and should be dismissed for cause, without their bonus or severance. Having a lawyer say "Huh, I guess they didn't know" is exactly the cover they need for feigned ignorance.

It means nothing of the sort. People socialize with coworkers all the time, and workarounds for dumb metrics is exactly the sort of thing that get gossipped about.

And "figure out how to make fake accounts" is pretty easy. This absolutely doesn't need coordination at all.

Once worked somewhere that management measured you by number of checkins. Engineers didn't need to talk with each other at all to get those numbers going way up. And they did, you betcha. Ask a stupid question, get a stupid answer.

Kim dot com is facing extradition to a country he has never set foot in, for crimes far less than what Rumsfeld, Cheney and Wolfowitz have done. Justice is a sort of illusion.

Factually incorrect... Before Mega when has was a Ponzi scheme operator and self-professed super-hacker he posted pictures all the time of his trips around the world in super-yacht, private jets and expensive cars. Including the US.

The CEO has money, connections, and the thin veneer of respectability. The issues involved are not so simple and emotive as the ones relating to sex and minors.

You know... the usual bullshit.

Plus the person who has him arrested is running for US Senate and sees a free way to get extra press coverage.

bingo

Wells Fargo execs have better lawyers, and they went to the same schools as prosecutors, they dress alike, and there is no significant revolving door arrangement between prosecutors and online prostitution enterprises.

Because he plays golf with a lot of politicians at the country club.

> Why is it that in such cases, the government reaches for the CEO right away;

War on sex is new War on Drugs. By going after the CEO they are setting a precedent. They want to make sure no investor would invest into something that challenges government authority.

Wells Fargo CEO will not be touched for the same reason why big banks get bailouts, Hillary clinton is not in jail and Obama is still a president despite killing thousands of innocent people around earth. They are too close to powers.

> Hillary clinton is not in jail

Ugh not this again. Hillary is not in jail because her actions did not rise to the level of criminal prosecution. Look at General Petraeus. He willfully gave highly classified material to his mistress. He got a plea deal and didn't serve any time. So how is it that Clinton who did not intentionally divulge classified material nor put an authorized server on the classified network, now deserves to be punished more harshly than Petraeus? That doesn't make any sense.

You can be a Hillary apologist for the sake of political arguments. The thing is if I had done the exact same thing I would be termed a traitor and put in jail.

> and Obama is still a president despite killing thousands of innocent people around earth.

Why not Bush? He's the fucking moron who started it all because he had daddy issues, and killed way more innocents ( > 300,000 ) than Obama??

Obama is just an mechanism. In case of Iraq war I think Bush and a large part of his administration must be jailed.

The vice lobby is apparently kinda weak.

> Why is it that in such cases, the government reaches for the CEO right away; but when Wells Fargo employees open millions of fraudulent accounts, it's not the CEO's fault?

Probably because a corporation like Wells Fargo will have extensive documentation of procedures and training that establishes sufficient evidence that there were efforts to constrain employee behavior to lawful acts in pursuit of the metrics which they ended up maximizing through unlawful acts that it will take a lot of digging, at a minimum, to have a viable case of executive criminal culpability.

Even if I were to grant that the Wells Fargo CEO should have been charged with fraud and he was not, that does not mean this BackPage scum-CEO should not have been charged. Two wrongs don't make a right.

99% of Wells Fargo's income was not coming from these fake accounts.

It is fine to steal as long as it is only a small percentage of your income?

When the threshold is to prove in court beyond a reasonable standard of doubt, it's going to be hard to prove that some horrible scheme that was never going to generate money (open a bunch of accounts customers don't know about and won't use, aside from some small amount of fees that will annoy customers) was undertaken deliberately, especially when it would only be a small part of the enterprise.

If it's 99% of your income, the CEO knows about it. If it's a tiny percentage, or none at all, the CEO might not know about it.

>but when Wells Fargo employees open millions of fraudulent accounts

Do you think forced prostitution and sex-traficking are equally harmful to society as fake accounts? I know I'm glad that authorities take this more seriously.

We need a Godwin's Law for random HackerNews threads that bring up alleged bank CEO crimes.

Because the CEO of a large bank/group has more leverage and influence than a small internet business.

Because bankers are better at committing fraud and hiding their tracks?

Because, get freaking real, there are 267K FTE at WF .. versus backapage probably hires what, maybe a 100 or so?

If some % of 267K people are not committing fraud, than I'd want to arrest the CEO for doing some terrible brainwashing.