Former Wells Fargo CEO May Have Known About Illegal Accounts in 2007

A letter addressed to John Stumpf from a whistleblower warned of "widespread" fraud

Former Wells Fargo CEO May Have Known About Illegal Accounts in 2007
October 18, 2016

Despite his recent claims before Congress, former Wells Fargo CEO John Stumpf may have known about the unethical sales practices taking place at the bank as far back as 2007.

CNNMoneydescribes obtaining a letter from that year addressed to Stump in which a whistleblower warned about widespread "unethical (and illegal) activity" taking place in the bank as well as the "routine deception and fraudulent exploitation of our clients."

The whistleblower was an employee at Wells Fargo who had been transferred from the branch after raising concerns regarding sales. The employee later won a federal whistleblower retaliation case against Wells.

The letter seems to predict the very situation in which the bank finds itself today.

"Left unchecked, the inevitable outcome shall be one of professional and reputational damage, consumer fraud and shareholder lawsuits, coupled with regulator sanctions," it warned.

It described the illegal activity taking place in northern California as "widespread and so highly encouraged that it has become a normal sales practice."

The whistleblower also copied Stumpf on another letter that was addressed to the audit and examination committee of the bank's board of directors. That letter similarly warned about "illegal and unethical activity and fraud" and added that the "activities remain ongoing to this day."

It is unknown whether or not the letters were actually sent and whether either Stumpf or the board members received or read them.

The whistleblower has since left Wells and did not comment.

The bank has been embroiled in a scandal since September when it was revealed that employees had opened up to two million accounts without customer authorization between 2011 and 2015. It was fined $185 million and fired 5,300 low-level employees over the illegal practice.

However, the letters written by the whistleblower and testimony provided by other former Wells Fargo employees suggest that the practices may have been even more wide-ranging and could have begun years earlier than the bank has admitted.

The board of directors said that it was not "aware" of the letters. When CNNMoney provided them, the board stated that the letters would now become part of the independent investigation being undertaken by law firm Shearman and Sterling.

In a separate statement, the bank said that, "in general, letters received by John Stumpf would have been forwarded to the appropriate channel for review, investigation and response."

It also reiterated the fact that it has been making "fundamental changes to help ensure team members are not being pressured to sell products." Wells ended its controversial employee sales goals on October 1.

The whistleblower behind the letters eventually sued Wells Fargo, winning a federal whistleblower case in 2008. It was a rare victory: a 2010 Labor Department Inspector General report estimated that only two percent of whistleblower cases are found in favor of employees.

In the whistleblower's case, a Labor Department division judged that there was "reasonable cause to believe" that the bank had violated whistleblower protection laws by transferring the employee after he or she flagged illegal practices. The Labor Department ordered the bank to transfer the employee back to his or her previous branch and pay damages as well as back wages and bonuses.

The specific issue dealt with in that complaint was the creation of fraudulent brokerage accounts. This practice violated SEC rules and put into effect Sarbanes-Oxley whistleblower protections.

In the 2007 letter addressed to Stumpf, the employee described the effort as the "final hope" to report the illegal activity internally. "All attempts to utilize traditional channels to report this information has been met with immediate and lasting retaliation," states the letter.

However, the whistleblower insisted that he or she was not a traitor for taking this action. "Despite having been slandered, publicly discredited and effectively blacklisted, I have remained loyal to Wells Fargo."