“That’s a red flag in itself,” said Howell E. Jackson, a professor at Harvard Law School and a visiting scholar at the Consumer Financial Protection Bureau. “It’s buried on Page 87. My concern is whether whistle-blowers were handled properly and to what degree the board bears responsibility. You don’t find any answers in this mumbo-jumbo.”
What disturbed Brandon L. Garrett, a professor at the University of Virginia Law School who wrote “Too Big to Jail: How Prosecutors Compromise With Corporations,” is that “to have a systemic pattern of misconduct on this scale, you needed to make sure that potential whistle-blowers kept quiet.”
“A bad compliance system is one thing,” he said. “But if people knew there were problems and were silenced, that’s much more serious.”
The problem is hardly limited to Wells Fargo. Retaliation against whistle-blowers is endemic, especially in banking, Mr. Garrett said, pointing to recent scandals at HSBC and UBS.
Last month, the Barclays chief executive, James E. Staley, was formally reprimanded by the lender’s board for trying to expose a whistle-blower who had filed an anonymous complaint about one of the bank’s top investment bankers, a friend of Mr. Staley’s.
Outside banking, the Fox News sexual harassment scandal has exposed a culture in which women were terrified to speak out. When they did, their careers were derailed and they were silenced through settlements and nondisclosure agreements.
How many potential whistle-blowers were there at Wells Fargo? The bank revealed that there had been 885 calls to its ethics hotline during the 2011-16 period, calls in which employees identified themselves by name and were subsequently subject to “corrective” actions (though not all were related to the bogus accounts).
Ms. Hardison said that after the investigation conducted with Shearman & Sterling, as well as an in-depth review by another third party, Wells Fargo had not substantiated a single instance of retaliation so far, while conceding that a few cases might be “cause for concern.”
In the Wells Fargo footnote, lawyers at Shearman & Sterling largely exonerated the bank. Based on a “limited review,” the report said, the firm “has not identified a pattern of retaliation” against bank employees “who complained about sales pressure or practices.”
How limited is “limited”? Shearman & Sterling reviewed thousands of documents, including human resources files, legal files and email. But as Mr. Garrett pointed out: “No one documents a case of retaliation. There’s always something in the file to justify it.”
Shearman & Sterling lawyers interviewed just three former employees out of 11 chosen for an in-depth analysis. (The other eight, not surprisingly, declined to speak.) The report noted that investigations into seven files “potentially implicating retaliation” were incomplete, and that investigations of four other individuals identified in shareholder complaints as whistle-blowers were continuing.
One prominent example, involving a former branch manager, Claudia Ponce de Leon, was not investigated because her claim is subject to a confidential proceeding before the Occupational Safety and Health Administration and the lawyers didn’t have access to her submission. In a 78-page preliminary finding, recently disclosed by American Banker, an OSHA administrator ruled that there was “reasonable cause to believe” that Wells Fargo had engaged in retaliation when Ms. Ponce de Leon was fired in 2011 after raising questions about fraudulent account openings; Wells Fargo is contesting that ruling.
Apart from the footnote, the report is a thorough — and blistering — critique of upper management, especially Carrie L. Tolstedt, the former head of community banking, where the scandal was centered, and John G. Stumpf, the former chief executive. Both were ousted last year, and the board is withholding some of their multimillion-dollar exit packages.
But Shearman & Sterling’s findings about Wells Fargo’s treatment of whistle-blowers would seem, at best, premature.
Stuart J. Baskin, the partner at Shearman & Sterling who headed the investigation, told me that the investigation of whistle-blowers was continuing, and that the firm would report to the board when it finished. Mr. Baskin added that whistle-blower cases “are very enigmatic, very difficult to prove,” something OSHA has struggled with for years.
It’s not clear how many cases of retaliation would amount to a pattern, but even one would seem too many, given the signal such actions send to other employees to keep their mouths shut, especially when employees wielding the hatchet kept their jobs and were in some instances promoted.
In Ms. Ponce de Leon’s case, Wells Fargo insisted that she was fired for excessive drinking and for a “long, well-documented history of unprofessional conduct,” according to the preliminary OSHA ruling. But the “evidence does not support that assertion,” the administrator concluded.
The OSHA ruling cited 20 pages of commendations spanning six years that Ms. Ponce de Leon had received as a Wells Fargo employee — the most recent just six months before she was fired. “Her H.R. file was a joke,” said Yosef Peretz, Ms. Ponce de Leon’s lawyer. “She had one drink at lunch.”
The real reason she was fired, he said, was that she discovered that a personal banker in her branch had entered multiple new client accounts with the same address — that of the Los Angeles County Department of Public Social Services — and nonworking phone numbers. Mr. Peretz submitted account records with her handwritten notations pointing out the fictitious addresses, which were also included in the OSHA ruling.
Ms. Ponce de Leon repeatedly raised concerns about these accounts, both with her district manager, and then, when that brought no results, the bank’s ethics hotline. Less than three weeks after she called the hotline, her district manager fired her, according to the administrator’s ruling.
“That place operated like the Italian Mafia,” Mr. Peretz said. “No one was held to account except for Ms. Ponce de Leon, the one person who tried to stop the fraudulent conduct. Nicha Tabrizi, the manager who fired her, is still at the bank, six or seven years later.”
Ms. Ponce de Leon couldn’t find another job in banking and became a sales clerk at Nordstrom. (She has since found a job at another bank, and the OSHA administrator, in his preliminary report, said he would order Wells Fargo to reinstate her.)
Or consider the case of Ricky M. Hansen Jr., a branch manager in Arizona. Mr. Hansen identified multiple fraudulent account openings at his branch, and reported the matter to his superiors and called the ethics hotline.
Instead of investigating the accusations, his manager, John Vasquez, is said to have warned him not to call the hotline because those people were a “pain” to deal with. “‘You have to decide if you want a job here. You can either run with us or not,’” Mr. Vasquez said, according to an affidavit from Mr. Hansen that was filed recently as part of a shareholder lawsuit. “Later on, I was called back into John’s office, and he told me, ‘Play ball or get out.’”
Mr. Hansen was subsequently fired, and said he has “struggled to find a new job” and “suffered a stroke along with other medical conditions because of the stress of the whole situation.”
As for Mr. Vasquez, he was promoted to district manager.
Aimee Worsley, a spokeswoman for Wells Fargo, said the bank could not comment on specific cases. She also said Ms. Tabrizi and Mr. Vasquez, who still work for the bank, declined to comment..
Ms. Hardison, the chief administrative officer, said, “If we do find instances where anyone at this company did not behave appropriately, we want to make it right.”
Wells Fargo is reaching out to former employees who left voluntarily, Ms. Hardison said, and over a thousand have been rehired. She said the bank had also formed a special team to evaluate more “complicated” cases, such as people who believe they were fired unfairly.
It would go a long way if Wells Fargo publicly admitted that at least some whistle-blowers had been mistreated, and rewarded them rather than fighting them in court.
Until then, Ms. Ponce de Leon’s lawyer remains skeptical. “They got away with this for 15 years and made billions in profit,” Mr. Peretz said. “Where’s the incentive to change?”