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Sole Wells Fargo executive charged in cross-selling scandal dodges prison time

Carrie Tolstedt was given three years probation for misleading a government regulator about the extent of the illegal sales practices at the bank.

LOS ANGELES (CN) — The only former Wells Fargo executive charged in what prosecutors called one of the biggest banking scandals in modern history escaped prison time for obstructing a government investigation into the bank's widespread practice of opening unsolicited and unnecessary secondary accounts for its retail customers.

Carrie Tolstedt, 63, the former head of Wells Fargo's Community Bank division, was given three years probation, including six months home confinement, at her sentencing hearing Friday in Los Angeles federal court. The government had sought a 1-year prison term.

U.S. District Judge Josephine Staton, while acknowledging the seriousness of the underlying sales misconduct at the bank, said she didn't want to make Tolstedt a scapegoat for the rampant misconduct of the bank's employees that predated her time as head of its retail banking division.

"The fact that there was widespread wrongdoing can't be placed wholly at the feet of Ms. Tolstedt," the judge said. "We can't give excessive punishment to one individual for the sake of general deterrence."

Tolstedt pleaded guilty in May to obstructing a government examination of the bank's pervasisve practice of opening unnecessary and unauthorized customer accounts.

She headed the Community Bank, which included its consumer and small business retail banking business, from 2007 to 2016, and retired as the bank was hit with massive fines over the so-called cross-selling scandal. Cross-selling involved salespeople setting 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.

"I sincerely apologize," Tolstedt said at Friday's hearing before the judge imposed the sentence. "I know that as leader of Community Bank, accountability rested on my shoulders and I accept full responsibility."

Staton appeared to agree with Tolstedt's attorney Enu Mainigi that the purported obstruction of the comptroller's inquiry was "de minimus" because by the time Tolstedt prepared the memo in 2015, the illegal sales practices at the bank were already national news. Nevertheless, the judge noted, the intent of the memo was to obstruct the examination by the banking regulator.

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Categories:Courts, Criminal, Financial, National

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