Carrie Tolstedt, the executive who served as Wells Fargo’s retail-banking chief at the time of its 2016 fake-accounts scandal, will plead guilty to one count of obstructing a bank examination, the Justice Department said in a release Wednesday.
The agreement, which has yet to receive a judge’s sign-off, could land Tolstedt in prison for up to 16 months. The DOJ asked for an April 7 hearing in federal court in Los Angeles.
The Office of the Comptroller of the Currency, also Wednesday, fined Tolstedt $17 million and banned her from working in the banking industry, according to a statement from the regulator.
Tolstedt’s obstruction charge stems from a 2015 Wells Fargo memo she helped prepare. In the memo, Tolstedt failed to disclose to the OCC statistics on the number of employees who were terminated or who resigned in connection with aggressive sales tactics, the DOJ said.
Wells Fargo had investigated just the most egregious 0.01% to 0.05% of employees engaging in activity flagged as potential sales misconduct as of July 2014, the DOJ asserted.
Yet Tolstedt knew a decade earlier that sales practices misconduct was occurring within Wells’ community-bank unit, and had learned about so-called “gaming” by sales staff from corporate investigations by 2006, according to the DOJ.
Further, she knew that termination numbers likely underrepresented the scope of the sales practices, which included employees opening millions of fraudulent accounts — many cross-selling the bank’s offerings to existing customers without their knowledge, the DOJ said.
Tolstedt is the first high-ranking Wells executive to face a criminal charge in connection with the fake-accounts scandal. She had consistently denied any wrongdoing. She retired from the bank shortly before the scandal became public, but was retroactively fired for cause, according to The New York Times.
How the penalty stacks up
Tolstedt’s $17 million penalty nearly matches the $17.5 million settlement the OCC reached with former Wells Fargo CEO John Stumpf in 2020 over the fake-accounts scandal. Like Tolstedt, Stumpf also received a lifetime ban from banking.
Tolstedt’s penalty, however, was not as much as the $25 million the OCC had previously sought in the case.
The Securities and Exchange Commission on Wednesday said it also reached a tentative settlement with Tolstedt in a separate case, alleging she misled investors about the bank’s sales tactics and financial health. A lawyer for that regulator noted the potential settlement to the judge hearing the DOJ’s case, but no details of the terms were available, according to The New York Times.
Enu Mainigi, Tolstedt's lawyer, did not respond Wednesday to a request for comment from American Banker. Mainigi had previously said Tolstedt acted appropriately, transparently and in good faith at all times.
A Wells Fargo spokesperson also declined to comment but referenced a statement CEO Charlie Scharf made to the bank's employees in January 2020.
"At the time of the sales practices issues, the Company did not have in place the appropriate people, structure, processes, controls, or culture to prevent the inappropriate conduct," Scharf said at the time. "This was inexcusable. Our customers and you all deserved more from the leadership of this Company."
Scharf has made reputational repair a priority since becoming Wells Fargo’s chief executive in 2019. “While our risk and regulatory work hasn’t always followed a straight line and we have more to do, we’ve made significant progress,” he said. “We will continue to prioritize our work here,” he told analysts this year.
A longtime holdout
Bartlett Naylor, a financial policy advocate at Public Citizen, told The New York Times he was encouraged that a banker tied to Wells’ fake-accounts scandal would likely serve prison time.
“But Tolstedt had bosses,” Naylor said. “Justice will not be complete until they face a similar penalty.”
An in-house judge for the OCC in December recommended penalties for several other former Wells Fargo executives connected to the scandal: $10 million for Claudia Russ Anderson, the bank’s former community bank group risk officer; $7 million for David Julian, Wells’ former chief auditor; and $1.5 million for Paul McLinko, the bank’s former executive audit director.
Wells Fargo has paid billions of dollars in penalties connected to the fake-accounts scandal, including a $3 billion settlement in 2020 with the DOJ and SEC. Several individuals, too, have settled. The bank’s general counsel during the fake-accounts era agreed to pay a $3.5 million fine in 2021. Three other former executives agreed to pay less than $1 million each in September 2020.
Tolstedt had long been a holdout, choosing to fight the OCC’s charges against her.
“The justice system and regulators rely on corporations and their executives to fully cooperate during investigations into potential wrongdoing,” Acting U.S. Attorney Joseph T. McNally said in a statement Wednesday. “Obstructing an investigation compromises the mission of those seeking the truth, and we will hold accountable any individual who attempts to conceal wrongdoing.”
Mark Bialek, inspector general for the Federal Reserve Board of Governors and Consumer Financial Protection Bureau, added Wednesday that Tolstedt’s plea deal “sends a clear message that bank executives who commit fraud and deliberately deceive regulators will be brought to justice for their actions.”