State senator blasts Wells Fargo for ‘bad faith’ as bank skips hearing
Quick breakdown of the Wells Fargo scandal.
The chairman of the California Senate’s banking committee blasted Wells Fargo on Monday for failing to answer questions about the bank’s accounts scandal and for not sending Chief Executive Tim Sloan or another representative to a committee hearing.
Committee Chairman Steve Glazer (D-Orinda) said he called for Monday morning’s hearing only after the San Francisco bank failed to adequately answer questions he put to bank officials over the last six weeks.
Those questions, which echo inquiries by lawmakers on Capitol Hill, include when executives first knew about the creation of unauthorized customer accounts and why the bank’s board and investors were not notified about the practice sooner. Glazer said he invited Sloan to address those questions at Monday’s hearing, but neither Sloan nor any other Wells Fargo executive attended.
“Their unwillingness to stand before this committee is a sign of bad faith with their customers and all of California,” Glazer said, comparing the bank to Enron, which did not send a representative to a 2002 Senate committee hearing about the company’s role in manipulating energy prices. “It is sad to see Wells Fargo join this elite hall of shame.”
In a statement, Wells Fargo spokeswoman Erika Reynoso said the bank wants to be responsive to lawmakers’ questions and noted that a regional executive testified at a state Assembly Committee hearing last month. But she said the bank is limited in what it can say because of an internal investigation into the accounts scandal.
“The committee continues to raise legitimate questions, but unfortunately some of them cannot be answered at this time due to an ongoing internal review,” Reynoso said.
Wells Fargo’s board of directors in September hired law firm Shearman & Sterling to investigate the sales practices that regulators say pushed Wells Fargo bank workers to open as many as 2 million accounts for customers without authorization.
That investigation is being overseen by the independent members of Wells Fargo & Co.’s board — that is, board members other than Sloan, who replaced embattled former Chief Executive John Stumpf last month.
At Monday’s hearing, Aeisha Mastagni, a portfolio manager for the California State Teachers’ Retirement System, which owns about 10 million Wells Fargo shares, said the pension fund has concerns about the independence of that investigation.
Mastagni noted that many Wells Fargo directors have been on the board for more than a decade, meaning their tenure includes years when unauthorized accounts were being created.
“The so-called independence of many members may be compromised,” she said.
Mastagni said CalSTRS has raised that issue and other corporate governance concerns with Wells Fargo in the wake of the bank’s accounts scandal, which broke in September when the Los Angeles City Attorney’s office and federal regulators announced a $185-million settlement with the bank.
She said CalSTRS still wants to know why board members were not informed years ago about the widespread creation of unauthorized accounts. Like Glazer, Mastagni said she hasn’t gotten answers.
“What level does [a problem] have to be at before it’s raised to the board level? We have many questions left unanswered,” she said.
Monday’s hearing is yet another sign that, nearly three months after regulators announced their settlement with the bank, Wells Fargo continues to deal with the fallout over unauthorized accounts.
This month, the bank confirmed that it is being investigated by the Securities and Exchange Commission. That’s on top of investigations by the federal Labor and Justice departments, congressional committees and various state agencies, including the California Department of Justice.
Also this month, the Office of the Comptroller of the Currency, one of the bank regulators that settled with Wells Fargo, hit the bank with new sanctions. In a Nov. 18 order, the OCC said it was canceling parts of its settlement agreement that would have shielded the bank from the kind of additional oversight usually reserved for the most troubled banks.
That means, among other things, that Wells Fargo will have to provide the OCC with written notices if it plans to replace board members or bank executives. That change appears to apply only to Wells Fargo Bank, which has a separate board from corporate parent Wells Fargo & Co.
The bank is also subject to a handful of lawsuits, from former employees who say they were fired for reporting or not participating in fraudulent sales practices, from investors who say the bank misled them about its financial performance and from customers who say they were wronged.
Customers have tried to sue the bank over unauthorized accounts before, but unsuccessfully. When customers open accounts, they sign a contract saying any dispute with the bank will be handled in private arbitration rather than in court.
Wells Fargo’s attorneys have argued that those so-called arbitration clauses cover all consumer disputes with the bank, including ones over unauthorized accounts.
During a pair of bruising congressional hearings this fall, members of the House and Senate banking committees asked then-CEO Stumpf whether Wells Fargo would allow customers to sue or continue to use arbitration clauses to block those suits.
Stumpf said the bank would stick with arbitration.
Though Stumpf retired last month, the bank has not changed its position.
Last week, the bank asked a federal judge in Utah to toss a class-action suit filed by bank customers a week after regulators announced their settlement with Wells Fargo. The bank’s attorneys, as in other cases, argue that the plaintiffs signed contracts obliging them to go to arbitration.
Follow me: @jrkoren
More to Read
