Yet another banking fiasco – Opening two million fake accounts to meet sales targets

Wells Fargo Concord stagecoach. April 2012 photo by James Ulvog.
Wells Fargo Concord stagecoach. Notice the only suspension for running over rough roads is those leather straps under the passenger compartment. Those didn’t smooth out the rocks and bumps very much. April 2012 photo by James Ulvog.

Deep sigh. Another banking fiasco hit the papers yesterday. The Wall Street Journal reported Wells Fargo to Pay $185 Million Fine Over Account Openings.

The bank will pay a mere $185M to settle claims brought by OCC, CFPB (Consumer Finance Protection Bureau, the new creation of the Dodd-Frank legislation), and LA city attorney.

This scheme involved customer-facing employees opening fake bank accounts in the name of existing customers without the customer’s permission. Another variation is opening a fake account in the name of a nonexistent customer. Article says sometimes money would be transferred from a customer’s account into the new, fake account with occasional NSF fees because there wasn’t enough money in the legitimate account to cover legitimate checks.

After the bank admitted all charges of deceiving customers and Although the bank neither admitted nor denied the allegations, the bank has agreed to pay up $185M for this scheme, I think we can drop this into the fraud category.

Since we are now thinking fraud, we can ponder what was the motivation. Based on reading the article, Wells Fargo has an environment which creates high pressure to hit sales targets in terms of new accounts and cross-selling customers to other products. Article says some branches had several meetings a day to discuss sales levels. In addition the bank’s compensation system created financial incentive to hit sales targets. More motivation.

In a tweet, Francine McKenna agrees with the suggestion from @Joe_in_Indiana that this could maybe even drop into the category of identity theft:




Over the last few years I have caught on to the concept that there are internal names developed to describe different techniques used in a scheme. Two mentioned in the article are “sandbagging” and “bundling.”

Sandbagging is sitting on a legitimate new account application for a while and waiting to open the account until some later time. Obviously, this would help smooth sales. If you got a lot of new account applications today you could hold some of them for a day or two for when you don’t have enough new accounts to hit your daily quota.

Bundling is untruthfully telling your customers that a particular product they want is only available in a package, which requires buying other services in addition to the one desired.

Article says there may have been as many as 2M fake accounts opened, consisting of deposit accounts, lines of credit, on-line banking, and credit cards. The magnitude of that count of 2M accounts customers didn’t want can be assessed is in relation to the bank having 40M retail customers.

Scale of terminations

Wells Fargo has terminated 5,300 employees. To defend the bank, a representative puts this in context of the bank having 268,000 employees in June 2016.

That means the bank fired 1.98% of its workforce over this specific issue. Two percent of the entire workforce engaged in this unethical behavior, were caught doing so, and then were terminated.


One out of every fifty employees cheated customers in order to hit sales targets and earn commissions.

A more useful statistic would be how many front-line staff work at the bank.

The representative acknowledged there are both supervisors and front-line workers who have been fired. Consider that – an unspecified number of managers at unspecified levels of responsibility knew enough of this behavior to get themselves fired.

Scheme ran for five years

9/9 – Naked Capitalism – Wells Fargo Fined $185 Million for Opening Phony Customer Accounts, Charging Fees Without Consent; Executives Go Scot Free.

Article calls attention to those 5,300 terminations, highlighting that the firings were spread over five years. Ponder that – over the course of the last five years 2% of the workforce has been terminated for improper behavior. Yet the improper behavior continued year after year.

When I first browsed the WSJ article yesterday, I had the impression that this was a recent find, with the bank just recently tumbling to what was being done across the front line, and then quickly cleaning house. Not so. Read the article more closely in order to write this article and sure enough, the terminations were spread over five years.

As for that $185M fine, the article points out the second-quarter profits were $5.6B. That’s a $185M fine on quarterly profits of $5,600M.

The fine is equal to three days of net income ($5.6B NI / 90 days = $62M / day ; $185M fine / $62M  NI/day = 2.98 days).

Oh, and the stockholders picked up the tab for the $185M hit to earnings.

Internal control

Do you suppose the internal control system of a publicly traded company ought to detect and stop an entity wide issue of internal controls that had been known to be a problem for years? Do you suppose the I/C system ought to have shut down the problem a few years before the LA city attorney forced the issue?

I only audit teeny tiny organizations, but it seems to me there are two internal control problems here: first, the scheme itself, and second, the failure to stop the behavior when it had been sufficiently well-known to generate a large number of firings.


Here’s another photo of a cool Wells Fargo stagecoach. It is nicely restored. You can see it at the bank’s museum in San Diego’s Old Town park.

Wells Fargo Concord stagecoach. April 2012 photo by James Ulvog.
Wells Fargo Concord stagecoach. April 2012 photo by James Ulvog.

1 thought on “Yet another banking fiasco – Opening two million fake accounts to meet sales targets”

  1. Pingback: Followup on Wells Fargo opening accounts without customer permission | Attestation Update - A&A for CPAs

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