Get Our Blog
  • Eric Hahn

Pervasive Sham Deals at Wells Fargo, and No One Noticed?

“I don’t want anyone ever offering a product to someone when they don’t know what the benefit is, or the customer doesn’t understand it, or doesn’t want it, or doesn’t need it.”

That was John Stumpf, the chief executive of Wells Fargo, one of the nation’s largest banks, in an interview about a year ago with The San Francisco Chronicle.

We found out Friday that at least 5,300 of his employees — let me repeat that number because it is so mind-bogglingly large: 5,300 — were engaged in rampant sham deals, secretly signing up myriad customers for two million accounts that they did not authorize, did not know they had, did not need, and clearly did not understand.

Wells Fargo then charged customers at least $1.5 million in fees for those unwanted sham accounts, which were created simply to goose the income of bank employees whose incentive programs rewarded them for opening as many new accounts as possible. Some of the accounts were closed right away, as soon as the employee got credit for them.

The executive who oversaw this group of rogue employees, Carrie Tolstedt, conveniently announced plans to retire over the summer and, according to Fortune, is being paid $124.6 million on the way out. (One analyst has called for a clawback of that exit package.)

Clearly there is a disconnect between whatever Mr. Stumpf was telling the public and what was actually going on at Wells Fargo — and that’s putting it politely.

Here’s Mr. Stumpf from that same interview in The Chronicle: “We think everyone here is a risk manager,” he said. “Whether it’s your official title or not, everything we do is a part of that.”

Wells Fargo has long tried to separate itself from Wall Street. Given its West Coast headquarters, in San Francisco, the bank has sought to portray itself as a bank for Main Street. Its entire ethos, Wells Fargo has long suggested, is one of trust and ethics.

But this episode raises all the same questions that have been asked about virtually every firm on Wall Street. Whatever distance Mr. Stumpf tried to maintain for Wells between it and the big New York banks with bad-boy reputations just evaporated.

When politicians talk about Wall Street as a “criminal enterprise,” this is exactly what they are talking about.

“This problem is a serious one and indicates that the company is feeling an intense pressure to perform that it cannot meet,” Richard Bove, a longtime research analyst, told me. “I would expect to see some meaningful internal adjustments. There clearly will be some management changes — whether they reach as high as John Stumpf is very hard to say.”

Mr. Stumpf has always said, fairly, that it is impossible to do a perfect job policing hundreds of thousands of employees. Warren Buffett, Wells Fargo’s largest shareholder, has sounded a similar note, describing his own company, Berkshire Hathaway.

“Somebody is doing something today at Berkshire that you and I would be unhappy about if we knew of it,” Mr. Buffett once said. “That’s inevitable: We now employ more than 250,000 people, and the chances of that number getting through the day without any bad behavior occurring is nil. But we can have a huge effect in minimizing such activities by jumping on anything immediately when there is the slightest odor of impropriety.”

Perhaps if a handful of employees at Wells Fargo were responsible for signing up some phony accounts, we could generously say, “Oh, there were some bad apples.”

But the scale and brazenness of this phoniness does not permit that. This sham, in its reach, is breathtaking.

“The magnitude of this situation warrants thorough and comprehensive review,” Senate Banking Committee members, led by Senator Robert Menendez of New Jersey, wrote in a letter to the committee’s chairman, Senator Richard C. Shelby of Alabama.

The letter continued, “Specifically, the committee should thoroughly examine this issue, including: How it is possible that more than 5,000 employees could bilk customers over the course of five years; the timing, extent and disposition of customer complaints; whether Wells Fargo’s sales and compensation structure incentivized employees to engage in deceptive and abusive practices; and what additional safeguards may be needed to prevent this type of behavior.”

All of this raises the question, based on Mr. Stumpf’s assertion that everyone at Wells Fargo is a risk manager: What, exactly, does an actual risk manager at Wells Fargo do?

That’s an important issue because Wells Fargo has always had a reputation as one of the best-managed banks, especially when it comes to risk. On Monday, the bank said it had temporarily suspended its cross-selling initiative, to be on the safe side.

Indeed, the great irony of this sham is how tiny it is in terms of dollars. That’s why the $185 million fine by the government wasn’t bigger.

As scams go, this one was, well, for lack of a better word, lame. It did not produce much profit, nor was it particularly hidden. For example, employees would use fake email addresses with the domain.

If investors are yawning, it’s because in pure dollar terms this is a minuscule deceit. But they shouldn’t be, because this could portend a larger problem, particularly as Wells seeks to become more aggressive in the risky business of investment banking.

Given all the regulations in place and the billions of dollars poured into compliance efforts, how could something so staggeringly widespread and so blatantly corrupt have happened in the first place?

Another question is what this scandal says about Wells Fargo’s seemingly down-home culture. Mr. Bove, noting that part of the sham included opening “566,000 phantom credit card accounts,” asked in a note to clients, “What does this indicate about the bank’s underwriting policies? Can anyone have a Wells credit card without any checks being made concerning that person’s ability to make payments for debt created using this card?”

And what does this say about the information the company has reported to investors and regulators? Mr. Bove added: “The bank also apparently opened 1.5 million false transaction accounts? Does this mean that accounts can be opened with no balances? What does it say about the willingness of the bank to operate with accounts on which it makes no money? What policies and procedures at this bank allowed this to occur?”

So far, these are all just questions without answers. Wells Fargo took out full-page ads last week in many newspapers (including this one) to “take responsibility.” But taking responsibility includes answering those questions — and we are all still waiting.


Portfolio &
Money Management


Contact Us

4 Landmark Square - Suite 315
Stamford, CT 06901





ADV Part 2 | ADV Part 3 (CRS) Privacy Policy | Cyber Security Policy | Business Continuity Plan Client Secure Upload


Check the background of this firm on FINRA’s BrokerCheck.           


NS Capital LLC is a Registered Investment Adviser. NS Capital and its representatives are in compliance with the current filing requirements imposed upon registered investment advisers by those states in which NS Capital maintains clients. NS Capital may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. NS Capital’s web site is limited to the dissemination of general information pertaining to its advisory services, and through the NS Blog access to additional investment-related information, publications, and links.  Accordingly,  NS Capital’s web site on the Internet should not be construed by any consumer and/or prospective client as NS Capital’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.  Any subsequent, direct communication by NS Capital with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of NS Capital, please contact the SEC or the state securities regulators for those states in which NS Capital maintains a notice filing.  A copy of NS Capital current written disclosure statement discussing NS Capital’s business operations, services, and fees is available from NS Capital upon written request. NS Capital does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to NS Capital’s web site or incorporated herein, and takes no responsibility such content.  All such information is provided solely for convenience purposes only and all users should be guided accordingly.


Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by NS Capital), will be profitable or equal any historical performance level(s).


Certain portions of NS Capital’s web site (i.e. newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, NS Capital (and those of other investment professionals) positions and/or recommendations as of a specific prior date.  Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s).  Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from NS Capital, or from any other investment professional. NS Capital is neither an attorney nor an accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice. 


Rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if NS Capital is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of NS Capital by any of its clients.  Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Each client and prospective client agrees, as a condition precedent to his/her/its access to NS Capital web site, to release and hold harmless , NS Capital’s officers, directors, owners, employees and agents from any and all adverse consequences resulting from any of his/her/its actions and/or omissions which are independent of his/her/its receipt of personalized individual advice from NS Capital.

© 2020-2025 NS Capital LLC. All Rights Reserved.