Wells Fargo Bank recently agreed to a multimillion-dollar settlement for setting up fraudulent bank accounts for existing customers—without their knowledge—and charging those same customers fees for those accounts.
This prompted a hearing by the Senate Committee on Banking, Housing and Urban Affairs, with the star attendee being John Stumpf, then the CEO of Wells Fargo. For this latest in a series of his company’s fraudulent practices, Stumpf was properly chastised by committee members, most notably by Sen. Elizabeth Warren, one of the few people on the committee who has not taken campaign contributions from Wells Fargo employees or political action committees.
Stumpf’s patent answer to questioning seemed to be, “I didn’t know about it,” but like a good soldier, he resigned—under pressure—and lost some $56 million in stock benefits—under pressure.
However, he will more than likely not be charged with criminal behavior because he “didn’t know.” In fact, most CEOs of large banks are in the same enviable position, enviable at least to those CEOs of small to mid-sized financial organizations who are now serving prison time for—among other things—money laundering, defrauding customers and just plain lying.
These smaller fish would not be in jail without the efforts of a small government agency named SIGTARP—Special Inspector General for the Troubled Assets Relief Program. SIGTARP was created to police the financial institutions that received government bailout (TARP) money after the financial crisis that led to the Great Recession. It has proved to be one feisty little outfit led by an equally feisty chief, Special Inspector General Christy Goldsmith Romero.
Since 2009, SIGTARP has filed charges against 366 financial company executives and convicted 259 of them. Of those, 163 are serving lengthy prison sentences and the rest are waiting for sentence to be imposed. But none of those charged with criminal activity are top officers of the really big financial institutions.
The big fish aren’t in jail because they “didn’t know” what was going on in their own companies. They claim that the companies they run are so large and complex that they can’t be expected to know everything that goes on in them. This raises the question: why are they paid so much when they know so little?
And it’s true, they don’t know because they are not told. This is not lower-level executives hiding their criminal activities. It is the culture of entire corporations to keep their top officers in the dark about any questionable practices going on so they can’t be held accountable by law enforcement. If they don’t know, how can they be guilty of anything other than ignorance of the company they run?
This immunity by way of ignorance can be changed. In SIGTARP’s Quarterly Report to Congress last week, Goldsmith Romero proposed a simple solution: require the top officers of large financial institutions to certify that there is no fraud or criminal activity being carried on in their organization.
By putting CEOs and other top executives in a position of potential liability it could be expected that criminal activities in the company would be discouraged, if only to keep the top officers out of jail. This seems to be a reasonable and fair approach, and the committee, which includes Montana Sen. Jon Tester, would be well advised to pursue it.
What is really disheartening, however, is the amount of fraud and deception that goes on in so many financial institutions, activity that cheats the taxpayer and devastates homeowners. It’s a painfully long list that is available at SIGTARP.gov under “Investigations.”
I would like to think that not all financial organizations are running con games, but considering the number of organizations and individuals who have been investigated and convicted by SIGTARP, it is tempting to draw the conclusion that fraud, deceit and cover-up runs rampant in our financial institutions.
A little jail time for top executives might help them hew to a moral compass—even if it’s not pointing to their direction of choice.