Sen. Elizabeth Warren (D-MA) is trying get rid of the CEO of Wells Fargo — for the second time in 12 months.
The Wall Street megabank has been in the Massachusetts senator’s crosshairs since it came to light in 2013 that it created as many as 3.5 million fake accounts for customers, resulting in millions of dollars in fraudulent fees and weakened credit scores.
Warren has been on a crusade to oust Wells Fargo’s senior management ever since. In 2016, after a high-profile exchange with Warren during his testimony went south, former Wells Fargo CEO John Stumpf resigned amid public outcry. And on Tuesday, Warren returned to the spotlight when she told Stumpf’s replacement, CEO Tim Sloan, “You should be fired,” during a banking committee hearing.
“Replacing an insider CEO who personally profited from the bank opening millions of fake accounts with another highly placed insider who personally profited from the same activity does not lead to change at the bank,” Warren told Vox in an interview after the hearing.
To her, replacing the bank’s leadership isn’t merely a symbolic gesture. Instead, she sees forcing a change in personnel — which, she notes, the Federal Reserve has the power to do to Wells Fargo should it so choose — as itself a meaningful policy action, one that would help reform the bank’s culture and could deter bad actors throughout the industry.
“Start with a little criminal responsibility,” she adds, “and see if that doesn’t clear things up at Wells.”
I spoke to Warren about the Wells Fargo scandal, Tuesday’s hearing, and whether longtime critics of Wall Street are beginning to win.
A transcript of our conversation, edited for length and clarity, follows.
Elizabeth Warren on “a case study in fraud that benefits those at the tippy, tippy top”
Obviously you went after Sloan today at the committee hearing, but previously you’d gone after Stumpf successfully, and he was forced to step down.
Both Democrats and Republicans on the committee today argued that the culture of the company has yet to change. Do you worry at all that lopping off the heads of the Wells Fargo hydra is an insufficient solution to its deeper structural and cultural problems that allow banks to get away with predatory behavior?
You know, Wells Fargo is a case study in fraud that benefits those at the tippy, tippy top — and crushes the employees and consumers at the bottom.
I worry that Wells Fargo just doesn’t get it. Replacing an insider CEO who personally profited from the bank opening millions of fake accounts with another highly placed insider who personally profited from the same activity does not lead to change at the bank.
Did anything at the hearing today give you assurance that Wells Fargo had learned from either the public outcry or multiple rounds of Senate hearings?
No! It was just the reverse.
It’s not just that Sloan was there when it happened — he was part of it. Either he was incompetent or he was complicit. And in either case, he should be fired.
What I was trying to do, whether I was successful or not ... is trying to simply document the things he knew. Either he failed to ask what was going on or he knew what was going on and lied about it.
Sloan profited personally from [the fake accounts]. He had 2 million in shares of Wells Fargo stock — and he got up every quarter during the fake accounts scandal and told potential investors that Wells was a great deal because of the cross-sell ratio. It turns out the cross-sell ratio was full of fake accounts.
And every time he did that and the stock price went up, he made money — lots of money. Then when the whole thing began to crack apart a month before the whole scandal went public, when he was asked about it, he lied.
It’s not just that Wells Fargo picked someone who had been [there for] a long time. They picked someone who was up to his ears in this fraud.
You’ve urged the Federal Reserve, under Obama appointee Janet Yellen, to use its power to force all 12 members of its board to step down, which she hasn’t done. And you’ve criticized DOJ and SEC officials appointed by Obama for not pursuing charges in court.
Do you think Obama’s appointees have been tough enough on Wells Fargo?
I don’t see this through a political lens. Personal accountability for corporate executives has virtually disappeared for decades now.
Look at what happened in 2008: the biggest crisis since the Great Depression, and yet no one was held personally responsible. Without some additional personal accountability, the executives get all the rewards. Making the shareholders pay a fine does not stop the executives from advancing these frauds.
That’s the part that was so frustrating about talking to Stumpf a year ago. His idea of personal responsibility was to fire a bunch of $12-an-hour employees. [Wells Fargo fired 5,300 low-level employees for selling the fake accounts.] They’re not the ones who led the bank into a massive fraud — it’s the executives who did it. And yet they expect to collect their bonuses and continue to get promoted. That has to stop in corporate America; otherwise, these giant financial institutions will take a fall down again.
To what extent do you think this problem is a lack of enforcement of existing regulations? Or is new legislation critical?
I’ll tell you a story. My Uncle Billy in Odessa, Texas, used to say after the last financial crisis in the late 1970s and early ’80s — which rolled across the United States ... — about 1,000 people were prosecuted and sent to jail.
I still remember being at a family reunion shortly after that. And Billy said, “Yeah, my banker friends used to work 10 to 3, and now they’re doing 2 to 5.” [Laughs] And that’s kind of the whole story.
That didn’t happen after the 2008 crisis. The law wasn’t weakened from the 1980s to the 2000s. It was the willingness of the prosecutors to call out the executives who had been a party to fraud.
In the Wells case, let me remind you — it’s not as if Wells had been pure as the driven snow until this scandal broke. Wells was already in trouble —
You’re talking the toxic mortgages —
Yeah — remember what it was: They were in trouble with the mortgages for the same kind of problems. They had put unrealistic sales requirements on low-level employees and pushed out those mortgages, particularly in African-American and Latino neighborhoods. And Wells had to pay a huge fine.
They said they would rework employee contribution to make sure they wouldn’t create a problem like this in the future. They reworked it right to the point where employees opened millions of fake accounts to meet their sales quotas.
I have sent letters to the Federal Reserve. I have asked the Department of Justice to investigate. I have asked the Securities and Exchange Commission to investigate for securities fraud. I hope there are ongoing investigations — but they aren’t public.
Imagining there’s President Warren and 60 Democratic senators — would you revoke Wells Fargo’s charter? What other big policies would be at the top of your agenda?
I would start by changing the leadership at Wells Fargo and conduct a thorough investigation into both securities fraud and criminal fraud. Start with a little criminal responsibility and see if that doesn’t clear things up at Wells. [Later in the interview, Warren asked me to clarify that she is not running for president.]
It seems like there’s been a shift in our political discourse about the degree to which Wall Street executives need to be criminally punished. And Republicans on the committee seemed totally outraged by this today too. Are you encouraged by a shift in the conversation in what appears to be your direction?
Yes. I am very glad to see a shift in the conversation. It’s about time.