March 16. The former head of Wells Fargo Bank’s retail banking division has agreed to plead guilty to obstructing a government examination into sales practices misconduct, and pay a $17 million civil penalty.

Federal authorities said Carrie L. Tolstedt, 63, of Scottsdale, Az. agreed to plead guilty to one count of obstruction of a bank examination. She is expected to make her initial court appearance in Los Angeles in the coming weeks, with the parties requesting the court to set a hearing for April 7.

Wells Fargo is the country’s fourth largest bank by assets, about $1.88 trillion. That number is capped by the Federal Reserve, which restricted the bank’s ability to grow in the aftermath of the fake accounts scandal. While Bank of America is a bigger bank by assets ($3.17 trillion) and has its headquarters here in Charlotte, Wells Fargo has more employees regionally.

Tolstedt has been banned from the banking industry.

Details

She covered up misconduct at Wells Fargo, according to Acting United States Attorney Joseph T. McNally. “Obstructing an investigation compromises the mission of those seeking the truth, and we will hold accountable any individual who attempts to conceal wrongdoing,” he said.

The plea agreement holds Tolstedt acountable for her role in obstructing the examination into the unlawful sales practices at Wells Fargo, “which deceived millions of clients who placed their trust in the institution,” said Acting Inspector General Tyler Smith of the Federal Deposit Insurance Corp.

Background

From approximately 2007 to September 2016, Tolstedt was Wells Fargo’s senior executive vice president of community banking and was head of the Community Bank, which operated Well Fargo’s consumer and small business retail banking business. The Community Bank managed many of the products that Wells Fargo sold to individual customers and small businesses, including checking and savings accounts, CDs, debit cards and bill pay.

Wells Fargo previously admitted that, from 2002 to 2016, excessive sales goals led Community Bank employees to open millions of accounts and other financial products that were unauthorized or fraudulent. In the process, Wells Fargo collected millions of dollars in fees and interest to which it was not entitled, harmed customers’ credit ratings, and unlawfully misused customers’ sensitive personal information.

Gaming

Many of these practices were referred to within Wells Fargo as “gaming.” Gaming strategies included using existing customers’ identities—without their consent—to open accounts. Gaming practices included forging customer signatures to open accounts without authorization, creating PINs to activate unauthorized debit cards, and moving money from millions of customer accounts to unauthorized accounts in a practice known internally as “simulated funding.”

Gaming also included opening credit cards and bill pay products without authorization, altering customers’ contact information to prevent customers from learning of unauthorized accounts and to prevent Wells Fargo employees from reaching customers to conduct customer satisfaction surveys, and encouraging customers to open accounts they neither wanted nor needed.

Aware as of 2004

According to the plea agreement, by no later than 2004, Tolstedt was aware of sales practices misconduct within the Community Bank and the fact that employees were terminated each year for gaming. By no later than 2006, Tolstedt was learning about the gaming practices from corporate investigations and, over time, learned that terminations for gaming in the Community Bank were steadily increasing, that the misconduct was linked in part to sales goals within the Community Bank, and that termination numbers likely underestimated the scope of the problem.

Although the Community Bank eventually took steps purportedly designed to proactively identify sales misconduct, the measures used by the bank flagged only a small portion of the potentially problematic activity for investigation. As of July 2014, only the most egregious .01 to .05 percent of employees engaging in activity considered a “red flag” for sales practices misconduct were investigated – with the remaining 99.95 to 99.99 percent left unexamined under this process.

Failed to disclose info

In May 2015, Tolstedt participated in the preparation of a memorandum, which she knew would be provided to the OCC in connection with its examination of sales practice issues at Wells Fargo. To minimize the scope of the sales practices misconduct within the Community Bank, Tolstedt obstructed the OCC’s examination by failing to disclose statistics on the number of employees who were terminated or resigned pending investigation for sales practices misconduct.

She also failed to disclose that the Community Bank proactively investigated only a very small percentage of employees who engaged in activity flagged as potential sales practices misconduct.