LOS ANGELES (CN) — The former head of Wells Fargo's Community Banking Division pleaded guilty to obstructing a government examination of the bank's rampant practice of opening unnecessary and unauthorized customer accounts.
Carrie Tolstedt, 63, faces as long as 16 months in prison and a $100,000 fine per her plea agreement with federal prosecutors in Los Angeles, although the judge will have the final say in how much time she'll end up serving.
"I plead guilty, your honor," Tolstedt told U.S. District Judge Josephine Staton on Thursday morning.
Staton ordered Tolstedt to return to court on Sept. 15 to be sentenced.
Tolstedt was head of Wells Fargo’s Community Bank, which included its consumer and small business retail banking business, from 2007 to 2016. She retired as the bank was hit with massive fines over the so-called cross-selling scandal, whereby its salespeople set up millions of additional accounts for existing customers without their knowledge in order to meet sales targets.
The bank retroactively fired her in 2017 and clawed back about $67 million in compensation.
In a separate settlement with the Office of the Comptroller of the Currency, Tolstedt agreed to pay a $17 million civil penalty for her role in the bank's systemic sales practices misconduct. Three years ago, Wells Fargo agreed to pay a $3 billion fine as part of a deferred prosecution agreement with the Justice Department.
According to her plea agreement, Tolstedt helped prepare a memorandum in 2015 for Wells Fargo's board that she knew would be provided to the Office of the Comptroller of the Currency in connection with its examination of the bank's sales practices.
She acknowledged that with the memo, she obstructed the comptroller’s examination by not disclosing how many employees had been fired or resigned for fraudulently opening customer accounts and by not disclosing that her division was only investigating a minute percentage of employees who had been flagged for potential sales misconduct.
"Beginning no later than 2006, defendant began receiving information from corporate investigations concerning gaming," according to Tolstedt's plea agreement, referring to employees' efforts to fraudulently boost their sales numbers. "Over time, defendant was informed that terminations for gaming in the Community Bank were steadily increasing, that the misconduct was linked in part to sales goals within the Community Bank, and that termination numbers likely underestimated the scope of the problem."
The statutory maximum sentence for the felony Tolstedt pleaded guilty to is 5 years in prison and a $250,000 fine. She retained the opportunity to withdraw her plea if the judge sentences her to more than 16 months custody as well as her right to appeal the sentence if it's longer than what she agreed to in her plea deal.
The San Francisco-based bank’s “Gr-Eight” cross-selling initiative pressured employees to open at least eight accounts for each customer, leading employees to create unauthorized accounts to meet the aggressive sales quotas.
Shareholders who sued the bank have said Wells Fargo misled its investors by touting the company’s “adherence to regulatory guidelines” in public filings and including the fraudulent, cross-sold accounts in its financial results.
In addition to the legal penalties, the scandal caused Wells Fargo untold harm in reputational damage, plus the costs of extensive advertising in The New York Times and other national publications trying to assure consumers that the bank was addressing the fraud.Follow @edpettersson
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