Wells Fargo consumer chief may testify of 'fear' her predecessor inspired
Wells Fargo’s consumer banking head, Mary Mack, may testify against her predecessor, Carrie Tolstedt, at an upcoming civil trial that is expected to explore where the responsibility for the bank’s phony-accounts scandal lies.
Mack is among four dozen current and former Wells executives and board members who were listed as potential government witnesses in a document filed early this month by the Office of the Comptroller of the Currency, which has brought the case before an administrative law judge. The agency alleges that five former bankers at Wells Fargo, including Tolstedt, failed to perform their duties adequately, and that their missteps contributed to systemic problems at the bank.
The case could expose internal rifts that would normally remain outside of public view, though most of the bankers who may be called to testify are no longer with Wells Fargo. A trial has been scheduled for next summer.
When Tolstedt left the San Francisco company in 2016, shortly before the fake-accounts scandal erupted, Mack succeeded her as head of its consumer banking unit. Mack had previously led the brokerage subsidiary Wells Fargo Advisors.
If Mack testifies, she is expected to speak about her communications with Tolstedt both before and after the latter executive’s departure, the OCC stated. Mack may also testify about the “fear” that Tolstedt’s team had of their onetime boss, according to the OCC.
A Wells spokesman did not provide comment on Mack’s behalf, but said, “Wells Fargo continues to cooperate with the OCC regarding this historical matter.” Tolstedt’s lawyer, Enu Mainigi at Williams & Connolly, did not respond to a request for comment.
The former Wells Fargo officials who may be called to testify by the government include ex-CEOs John Stumpf and Tim Sloan, ex-chief administrative officers Patricia Callahan and Hope Hardison, ex-Chief Risk Officer Michael Loughlin and ex-Board Chair Stephen Sanger.
Stumpf, Hardison and Loughlin all agreed to civil settlements with the OCC in January. Sloan, Callahan and Sanger have not been charged.
Many of the same former Wells executives, including Stumpf and Sloan, could also be called to testify as defense witnesses.
The five defendants have also said that they may seek testimony from various current and former OCC officials, including Bradley Linskens, Kenneth Peyer, Scott Wilson and Tanya Smith, all of whom have served as the agency’s examiner-in-charge at Wells Fargo.
Those individuals may be asked to testify about the OCC’s supervision and oversight of Wells Fargo’s incentive compensation plans, its cross-selling efforts and the contemporaneous understanding of alleged sales misconduct at the bank, according to a court document filed on Aug. 4.
In addition to Tolstedt, the defendants in the case are former Wells Fargo General Counsel James Strother, former Chief Auditor David Julian, former Executive Audit Director Paul McLinko and former Community Bank Group Risk Officer Claudia Russ Anderson.
The case represents one of the largest-ever efforts by U.S. regulators to punish individual bankers. The OCC is seeking to collect a combined $37.5 million from the five defendants. Their attorneys have called the charges unfounded.
One episode that could be illuminated at trial is what happened internally in the immediate aftermath of the September 2016 announcement that Wells would pay $185 million in penalties to federal regulators and local authorities in Los Angeles.
The following day, Stumpf wrote in an email that has since been made public as part of the court case: “Day 1 was far worse than we expected — far worse. We are in damage control with an eye for how we move on from here.”
Eleven days later, Stumpf gave congressional testimony that was widely panned. He told senators that the vast majority of the bank’s employees were doing the right thing, even though millions of potentially unauthorized customer accounts had been opened.
It was years later before Stumpf, who stepped down shortly after that hearing, acknowledged that the bank actually had a systemic problem.
If Stumpf is called to appear at trial, he is expected to speak about the involvement of the bank’s law department in his congressional testimony, according to the OCC’s Aug. 4 filing.
Another aspect of the phony-accounts saga that may be spotlighted at trial involves a consent order that Wells Fargo reached in July 2011 with the Federal Reserve Board. That earlier consent order, which has drawn scant attention in coverage of the scandal, involved allegations that employees of a now-defunct subsidiary, Wells Fargo Financial, falsified income information in mortgage applications.
The OCC alleges that the subsequent sales misconduct in the company’s retail banking unit was similar to the problems uncovered earlier at Wells Fargo Financial. The agency contends that the 2011 order triggered an obligation for Strother, the firm’s longtime general counsel, to stop similar misconduct elsewhere in the company.
In deposition testimony, Strother has spoken about differences between the two episodes, and has said that to the extent similarities exist, they are evident only in hindsight, according to a July court filing by his attorneys.
Strother and Callahan, who retired as Wells Fargo’s chief administrative officer in 2015, are among the potential witnesses who may testify about the July 2011 consent order with the Fed, according to court filings.