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Wells Fargo Lawsuit for Opening False Accounts

WellsFargo Lawsuit for Opening False Accounts

WellsFargo Lawsuit for Opening False Accounts

Manycorporations consider profit making as their primary objectives.Although such objectives can help companies grow faster, they subjectthe executives to excess pressure that result in fraud as they try tocreate more wealth for their shareholders. This trend has beenconfirmed by data showing that the number of corporate frauds hasbeen increasing exponentially over the years. For example, InternalRevenue Service (2016) reported that the number of prosecutionsleading to successful incarceration following corporate fraudsincreased from 72.2 % in 2014 to 81.4 % and 97.0 % in 2015 and 2016,respectively. The corporations and executives who have beenimplicated in scandals are motivated by different factors. This paperwill address the incident of corporate fraud that involved theopening of fake accounts by the employees of Wells Fargo Bank. WellsFargo is a bank that is ranked as the second in the world in terms ofmarket capitalization (Stumpf, 2014). The bank was established in1852 and it has been growing over the years through differentstrategies, such as acquisition and the diversification of services.This paper will address the lawsuit in which the members of staff ofWells Fargo opened accounts and credit cards without theauthorization of the customers.

Originof the Fraud

Thecorporate fraud that affected Wells Fargo involved the opening offake accounts by the bank’s employees. The incident started in thefinancial year 2011, when the bank employees developed a perceptionthat the application of strategies that could help the financialinstitution report high sales would give them an opportunity to earnmore bonuses (Taylor, 2016). It is estimated that company’semployees opened about two million credit cards and bank accountswithout the knowledge of the customers (Taylor, 2016). Since theobjective of this fraudulent activity was to increase the bank’sreported profits, the employees ensured that the fake accounts earnedthe financial institution unwarranted fees. Although the relevantauthorities stated that the scandal occurred between 2011 and 2015.Investigations indicated that the practice of opening fake accountson behalf of customers dated back to 2005 (Smith, 2016). However, itwas practiced in large scale between 2011 and 2015 compared to theprevious years.

Someemployees claimed that their objective was to meet the toughfinancial targets set by the bank. This suggests that both the bankand its employees were driven by the financial motives in all theirdecision making processes. The scope and the magnitude of the scandalare confirmed by the fact that it was perpetrated by more than 5,300employees, who were fired soon after the discovery of the incident(Doerer, 2016). The scope of the incident is also confirmed by thefact that the employees were able to open a total of 1.5 million bankand over 500,000 credit card accounts (Doerer, 2016). The employeesmanaged to open fake accounts by developing phony PIN numbers andemail addresses that enabled them to enroll the existing customers toservices (such as online banking) that they had not applied for. Theemployees then moved the customers’ money from their originalaccounts to the newly opened ones. This happened without theknowledge or the consent of the affected customers, which is anirregular practice as per the rules that guide players in the bankingsector. Customers who had insufficient funds in their respectiveaccounts were charged the overdraft fees because of havinginsufficient money (Taylor, 2016). In the case of false creditaccounts, customers paid interest charges, annual fees, and overdraftprotection fees.

TheLegal History

Thebanking system is regulated by laws that are used to determinewhether the practices of the financial institutions are ethical ornot. In the case of Wells Fargo, the legal battle started in 2007when Ms. Julie Tishkoff and Guitron were fired after complainingabout the employees who were opening phony accounts. After filing acase for illegal termination, the court sided with the Bank and ruledthat the financial institution had engaged in fraudulent activities,but still had suitable grounds to terminate the employees who failedto meet the tough sales targets (Taylor, 2016).

Anew legal battle was initiated in September 2016. During this month,the Office of the Controller of the Currency (OCC) and ConsumerFinancial Protection Bureau (CFPB) discovered that Wells Fargo hasopened a total of million accounts that were not requested by thecustomers in May 2011- July 2015. The two government agencies(including CFPB and OCC) fined the bank about $ 185 million (Taylor,2016). The CFPB released a report on September 13 showing that thebank had set a goal that could make it a leader in cross-selling. Itinitiated an incentive program to motivate its employees to convincecustomers to buy additional services, but they opened new accountswithout obtaining the relevant consent.

Thefederal prosecutors and the FBI started probing the bank on September14, 2016. The Financial Service Committee in the House ofRepresentatives initiated its investigation on September 16, 2016(Taylor, 2016). The second class lawsuit was brought before the courtby three residents of Utah State and victims of fake accounts onSeptember 16, 2016. The U.S. Senate requested the Department of Laborto investigate whether the bank had contravened the Fair LaborStandards Act on September 22, 2016. On September 26, 2016, twoformer employees (including Brian Zaghi and Alexander Polonsky)represented other members of staff and sued the bank for harassmentand termination that occurred in the past 10 years (Taylor, 2016).These employees were harassed for failing to meet unrealisticcross-selling targets.

TheCurrent Situation

KamalaHarris, the attorney general of California initiated an officialinvestigation on October 19, 2016. The objective of theseinvestigations was to determine whether the members of staff of WellsFargo had played a role in the process of opening fake accounts(Taylor, 2016). In addition, the attorney generally intended toidentify the specific names of managers and employees who took partin the scandal, with the objective of prosecuting them for identitytheft and impersonation. The study of trends on the Well’s scandalindicates that there no successful prosecution that has been done inthe court of law. It is only the former employees who have managed tofile class suits before the federal as well as the state courts. Therelevant government agencies (including the SEC and the Office of theAttorney General) are conducting criminal investigations prior to thepresentation of the culprits before the court.


Theimpact of a business law: The Sarbanes-Oxley Act

Theoperations of Wells Fargo that involved the opening of fake accountscan be classified as a scandal, depending on the laws that wereviolated. The Sarbanes-Oxley Act that was enacted in 2002 is one ofthe key legislations that were violated by the employees as well asthe managers of Wells Fargo. For example, Section 404 gives thecorporate executives the responsibility of developing and testing thelevel of the effectiveness of internal controls (Fischer, Gral &ampLehner, 2014). The purpose of this section was to prevent a scenarioin which the corporate executives could pass the blame to theirjuniors when scandals occur. For an instant, the management of WellsFargo accused its employees of trying to open accounts on behalf ofthe customers without their authorization in an effort to make moremoney through the company’s bonus program. The management announcedthat it had terminated the employment contracts for over 5,300members of staff to that effect (Doerer, 2016). However, the factthat the employees were able to open fake accounts for more than twomillion customers over a period of about four years suggests that themanagement had failed to develop effective internal control tools.

FairLabor Standards Act (FLSA)

Theviolation of the labor laws is the basis on which the suit madeagainst the Wells Fargo bank by the former employees was made. TheFLSA was established, with the objective of protecting members ofstaff from being exploited by their employers. The law indicates thelabor practices (such as overtime payment, termination, and otherforms of employee treatment) that should be observed by employers(U.S. Department of Labor, 2011). The former employees sued the bankfor failing to pay them the overtime that they spent trying to openthe large number of fake accounts. They also argued that most oftheir colleagues were demoted or terminated for failing to help thebank accomplish illegal businesses that involved opening of newaccounts without the authorization of the customers. Therefore, thesuit brought before the court by former employees in a court based inCalifornia will be argued using the provisions outlined in the FLSA.


TheWells Fargo scandal resulted in the violation of three key ethicalprinciples. First, the principle of autonomy holds that the right ofother people to self-determine the course of a given action should berespected (Bhanji, 2013). This principle was violated when theemployees of the bank decided to open accounts for the customerswithout their knowledge. The affected customers were denied the rightto determine the type of services that they wanted to buy from thebank.

Secondly,the principle of non-maleficence holds that decision makers shouldfocus on taking actions that will minimize harm of the affectedstakeholders (Bhanji, 2013). The management as well as the employeesof Wells Fargo had the obligation to ensure that their actions anddecisions do not cause harm to their customers. However, the decisionto open accounts that forced customers to incur expenses and pay forcharges that they had not planned for can be considered as a form ofharm. Therefore, the principle of non-maleficence was contravened.

Third,the principle of justice states that the decision makers have theobligation to provide other people with what they deserve or they areowed. In other words, the principle of justice requires the decisionmakers to treat individuals as well as groups that will be affectedby their actions in a fair way, impartially, and equally (Bhanji,2013). The fake accounts opened on behalf of customers without theirauthorization resulted in their unfair treatment since they assumedthe financial burden of the scandal. They were charged for theoverdraft and having insufficient money in their original accounts(Doerer, 2016). This injustice serves as a rationale for the ongoinginvestigations and lawsuits against the Wells Fargo bank.

OpposingPoints of View

Themanagement, employees, and political leaders held different viewsregarding the Wells Fargo scandal. The management of the bank madethe first press release indicating that it blamed the employees fordeveloping strategies that could help them increase their bonus fromthe company by exploiting innocent customers (Doerer, 2016). Themanagement passed the blame to about 5,300 members of staff, who wereterminated after being implicated in the scandal. This informationsuggests that the members of staff were the major culprits in thescandal, from the view point of the bank’s management.

Employees,on the other hand, held a different point of view. They blamed themanagement for setting unrealistic targets and forcing them to openfake accounts in order to help the bank realize its sales objectives.For example, a team of two former employees who filed a class suit onbehalf of other members of staff who were fired, demoted, orblackmailed for refusing to open the fake accounts argued that thescandal was organized by the management (Taylor, 2016). They arguedthat the primary objective of the management of the Wells Fargo wasto boost the bank’s stock price, which could only be achieved byincreasing the sales. Based on this argument, the former employeeswere able to convince the stakeholders that they were subjected to asituation in which they had to choose between opening unauthorizedbank accounts and retaining their jobs.

Thelegislators and most of the government agencies blamed the executivesof the banks. For example, members of the Finance Service Committeepressured the CEO, John Stumpf, to take up the responsibility andresign (Taylor, 2016). This suggests that the government agencies areconvinced that the management of Wells Fargo failed to take up theresponsibility of protecting customers while pursuing the interestsof the shareholders at the same time.


Theveracity and the impact of the Fargo’s scandal can be determined byevaluating the information provided by each of the stakeholders, thenumber of affected customers, and its financial implications. All thestakeholders (including the bank’s management, employees,government authorities, and customers) agree that the scandalactually happened, since all the fake accounts can be identified andcounted (Doerer, 2016). This implies that the veracity of the scandalcan be confirmed without doubts. There are three groups of thestakeholders that are likely to be impacted by the fraud. The firstgroup is comprised of more than two million customers, who wereforced to pay overdraft charges in order to meet the minimum balancefor the new and fake accounts (Doerer, 2016). Although the bankpromised to compensate them, they have already suffered from thedamage.

Thesecond group of the stakeholders is the employees, who wereterminated or demoted for refusing to open fake accounts on behalf ofthe bank’s management. These employees sued the bank, with theobjective of being compensated a total of $ 2.6 billion in damages,but they have already suffered from the loss of income andpsychological distress after being harassed by the financialinstitution (Domonoske, 2016).

Lastly,the shareholders will be affected by the potential decline in theprice of the bank’s share following the spread of the informationabout the scandal (Domonoske, 2016). Therefore, the management’sobjective of increasing the sales was necessary, but the wrongstrategies were used to pursue the growth strategy.


Corporateexecutives are employed to help the shareholders pursue the objectiveof creating wealth. However, this objective should be accomplished byfollowing the law and the interests of other stakeholders. Thepurpose of opening unauthorized accounts was to help the Wells Fargobank increase sales and the price of shares, which would serve theinterests of the shareholders. However, the corporate executivesbroke the laws and infringed the rights of others stakeholders. Thecorporate executives contravened the fair labor practices laws byforcing the employees to engage in illegal transactions. Thetermination and demotion of the members of staff who refused to helpthe executive accomplish illegal goals was also a violation of fairlabor practices. In addition, the lack of effective internal controlsthat could help the bank detect and prevent fraud is an indication ofthe fact that the corporate executives failed to assume theirresponsibilities as required by Section 404 of the SOX Act. Althoughthere is no lawsuit that has been concluded, it is evident that WellsFargo could face a series of class court cases from the offendedcustomers, employees, and the government agencies.


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Domonoske,C. (2016). Ex-Wells Fargo employees sue and allege they were punishedfor not breaking law. NPR.Retrieved November 24, 2016, fromhttp://www.npr.org/sections/thetwo-way/2016/09/26/495454165/ex-wells-fargo-employees-sue-allege-they-were-punished-for-not-breaking-law

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