Sunday, April 2, 2017

Prudential and Wells Fargo: False Accounts and Stealing Customer’s Money (2016).

"Nightly News" segment of Wells Fargo Scandal
In 2014, the financial institution, Prudential, along with the financial services company, Wells Fargo, launched their new life insurance plan called "MyTerm." Created and run by Prudential but sold through Wells Fargo, the new plan was a low-cost life insurance policy that needed no medical background information. The purpose of "MyTerm" was driven towards those who couldn't afford to obtain life insurance regularly. However, Wells Fargo is a bank, their employees weren't licensed to sell life insurance. Thus, they were only available for purchase at kiosks at Wells Fargo branches or online using Wells Fargo accounts. 

Since 2014, when the policy was made available, the companies Prudential and Wells Fargo have found themselves in hot water. As early as January 2015, three Prudential employees who were supervisors of the Investigative Division of Prudential's Legal Department filed a hefty law suit against the financial institution. The three former-employees uncovered that Wells Fargo employees had been signing up customers for the low-cost Prudential life insurance without their knowledge or even their permission. Through deeper analysis, the three also found that some insurance products that were owned by Wells Fargo customers were accompanied by obviously-fake home addresses and phony email addresses. It has been stated that "Wells Fargo bank employees had created at least two million fraudulent bank accounts" which led to "nearly $200 million in fines and to the termination of 5,000 employees" (Bloomberg). The creation of these false accounts and the impermissible actions by Wells Fargo employees was driven by unrealistic sales goals and the fear of being terminated for not meeting quotas, that were set by Wells Fargo. 


John Stumpf: Former CEO of Wells Fargo
In order to introduce the stakeholders in this case, we must define what a stakeholder is.  A stakeholder is anyone who is affected by the actions of the company. In this case, the primary stakeholders are the Wells Fargo customers who were signed up for the life insurance policies they, either, knew little of it or knew absolutely nothing about it. These customers, may also have family members who were affected by the withdrawal of premiums from their account, which took away their hard earned money. In comparison, the three employees or "whistle-blowers" who opened the fight against this scandal, are important stakeholders. After issuing a formal Dodd-Frank whistleblower complaint with the SEC, the three employees were put on unpaid administrative leave by Prudential and were escorted off the company's premises (CNNMoney). On the other hand, those employees at Wells Fargo and Prudential that were creating fake accounts and charging existing customers are also stakeholders. In addition, the company's stockholders are important stakeholders. In the short-term, they benefitted greatly from the extra profits they were generating from the fraudulent accounts and targeting uninformed/unaware customers. But in the long-term, these stockholders will have to face the repercussions of the decisions made by Prudential and Wells Fargo employees. The former CEO, John Stumpf, took the fall and "retired" in October of 2016 after personally taking responsibility for the fraud allegations. 

The ethical theory of Individualism is defined as, "Business actions should maximize the profits for the owners of a business, but do so within the law." (Salazar 17) Analyzing this case, the company and employees did act ethically with one part of individualism. In their efforts to maximize the company's profits, employees tried everything to increase their sales and the number of MyTerm policies they sold. However, in the act of trying to achieve sales goals and maximizing profits, the employees and the company Wells Fargo broke the law. By creating fake bank accounts, going behind customers back and signing them up for life insurance plans they had no or little knowledge about, Wells Fargo and Prudential fail the ethical theory of individualism. 

Former Customer, Kevin Pham, protesting Wells Fargo
The theory of utilitarianism focuses on the measurement of happiness. A utilitarian says that happiness is the only thing of intrinsic value and counts happiness as pleasure and freedom from pain (Salazar 20). In addition, business actions should aim to maximize happiness in the long-run and includes all beings that are capable of feeling happiness. We must analyze the happiness of all the stakeholders. For starters, the companies Wells Fargo and Prudential, created the MyTerm policy to maximize the happiness of those who could not afford a traditional life insurance plan. However, their incentive procedure/policy led employees to go to extreme measures to achieve the unrealistic sales goals. Although the companies acted ethically under part of utilitarianism, they failed to maximize happiness in the long-run. After customers and the public discovered the unlawful methods that Wells Fargo employees were using with Prudential's MyTerm policies, many were unhappy. In addition, those customers who were taken advantage of, have families who were affected by the loss of money in the accounts. The only people who were happy after this illegal action is the three employees, who filed the lawsuit against Prudential for their unjust terminaion. Although they were, put on administrative leave and eventually terminated for not "covering up" the illegal actions, the three employees got the last laugh as they won the lawsuit and were compensated heavily for their troubles. In the end, the companies Wells Fargo and Prudential did not act ethical according to the perspective of a utilitarian.  

Under the Kantian theory of ethics, one must act in such a way that respects individuals and their choices. You must not lie, cheat, or manipulate to get your way, but rather use rational and knowledgable consent. In Wells Fargo's situation they clearly do not act ethically under Kantianism, due to the fact they committed fraud by creating fake accounts and stealing people's money. However, Kant's theory uses a technique called, the Categorical Imperative, to decide whether the action was permissible under the theory's principles. In the Categorical Imperative, Kant uses the "formula of humanity" as the formal test. This "formula" states that it is morally wrong to use people as mere means to get what you want. For this case we analyze Wells Fargo's actions in the "Formula of Humanity." In the end, the employees and Wells Fargo fail the formula of humanity because they used their customers, without their knowledge, to achieve their sales goals and receive their commission on the transactions. There were spikes in sales near the end of each quarter for MyTerm policies ( which shows that employees were desperate to achieve their sales target and receive their bonuses/commissions. Thus, they went to irrational means to try and achieve the high expectations that the company set. The company uses the customers as mere means to drive up profit and therefore is seen as unethical according to kantianism. 

Virtue Theory:
Wells Fargo and Prudential filed a lawsuit for their actions
The ethical principle, called virtue theory, is based on four main virtues. They are courage, honesty, temperance/self-control, and justice/fairness. Let's examine Prudential and Wells Fargo's actions according to the virtue theory's four main principles. First is courage, which is stated to be emotional strengths that involve the exercise of will to accomplish goals in the face of opposition. Although, the companies thought they were acting with courage by setting high expectations and trying to achieve their sales goals, they ultimately fail by breaking the law and committing fraud. Next is honesty, which is clear that the companies and their employees did not satisfy. They were the opposite of honest when they purchased the MyTerm policies without the customer's permission or knowledge. The third virtue is temperance/self-control, which includes traits like prudence. Prudence is stated as being careful about one's choices; not taking undue risks; not saying or doing things that might later be regretted (Class Handout). Based off the trait of prudence, we can conclude that Wells Fargo and its employees would regret the decision of creating fake accounts and purchasing life insurance without the customer's permission. Thus, the company fails the virtue of temperance/self-control. The last virtue to analyze is justice/fairness. Wells Fargo did not act fair when they purchased the MyTerm policies without the customers permission and knowledge, and due to this they fail to satisfy the last virtue. Overall, by not exhibiting any of the four main virtues in their actions, Wells Fargo and Prudential do not act ethically according to the virtue theory. 

Justified Ethical Decisions:
Looking at all the contributing factors in this case study, it is clear that Wells Fargo and Prudential did not act ethically in this situation. Based on the drive to achieve unrealistic sales goals and receive bonuses/commission, the companies led their employees to act unethical and unlawful. The fact that the company did commit a crime (fraud), makes it unethical from almost all theory perspectives. The creation of over 2 million fake accounts and thousands of reports of unauthorized purchases of Prudential's MyTerm policies makes this an easy decision that the companies did not act ethically in their actions. 


  • Pettersson, Edvard, and Laura J. Keller. "Wells Fargo Scandal Hits Prudential as Whistle-Blowers Sue." Bloomberg, 10 Dec. 2016. Web. 29 Jan. 2017.
  • Egan, Matt. "Wells Fargo Scandal Spreads to Prudential Insurance." CNNMoney. Cable News Network, 12 Dec. 2016. Web. 29 Jan. 2017.
  • Dow Jones Newswires, Emily Glazer. "Wells Fargo to roll out new plan to replace sales goals." St. Paul Pioneer Press (MN) 8 Jan. 2017, St. Paul, Business: D1. NewsBank. Web. 29 Jan. 2017.
  • Lee, Thomas. "Wells needs big change, not just a quick fix." San Francisco Chronicle (CA) 22 Jan. 2017, Advance8, Business: D1. NewsBank. Web. 29 Jan. 2017.
  • Meyerowitz, Steven A. "Wells Fargo Fraud Extended to Prudential Life Insurance Policies, Whistleblowers Allege.", 11 Dec. 2016. Web. 29 Jan. 2017.

  • Broderick v. Prudential Insurance Co. Superior Court of New Jersey Law Division. N.d. N.p., 11 Dec. 2016. Web. 29 Jan. 2017.

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