Tuesday, April 3, 2018

Wells Fargo: Account Fraud/Insurance Scandal (2016-2018)

Major bank Wells Fargo is looking at over
 3.5 million fraudulent accounts.

Wells Fargo, a well-known bank that holds accounts for millions of people world wide is currently in the hot seat for one of the biggest fraud scandals the United States has ever scene. The bank was caught opening millions of savings and checking accounts using the information of existing clients and charging each account unnecessary fees. Clients began to pick up on the scandal when they started to receive debit cards, credit cards, and lines of credit that they were unaware of ever ordering or signing up for. When the case was opened the individual branch workers were the first on the chopping block but it was later determined that corporate heads and Upper-Management were pushing for branches to meet nearly impossible quotas through cross-selling to their clients. Employees were encouraged to look at clients as customers and themselves as the salesperson pushing extra and unneeded products. In order to meet the insane quota imposed by higher up management employees were told to start ordering things like credit cards for clients without their permission and then use their own information to conceal the fraud being done. They then began transferring money from the clients real accounts and using it to open fraudulent accounts to bill. This fraud scandal reached such an extreme level that employees began enrolling the homeless in financially charging accounts. Upper management did nothing to stop employee's from these unethical means despite the inappropriate conduct happening in the workplace and the unrealistic goals being placed on branches of the bank. Towards the end of the year it was revealed by three whistle blowers from Prudential that the employees were also selling insurance such as life insurance to clients. These three whistle blowers were then fired from Prudential but had finally brought the scandal to light. Senator Elisabeth Warren then launched a full scale investigation into the recent acts of Wells Fargo.
CEO John Stumpf Preparing to address congress.

The Investigation into the fraudulent activities by Wells Fargo revealed that the bank had created over 3,500,000 fraudulent accounts and sold 565,433 credit card accounts costing clients upwards of $110 million in incurred fees and charges. This covered all damages from incurred fees to damaged credit scores. The Central Bank and Government was not so easy to please Wells Fargo was forced to remove four chairmen out of its 16 person executive board setting the company years behind its competitors. On top of this John Stumpf, CEO of Wells Fargo stepped down after giving a testimony during his senate hearing.This strongly damaged Wells Fargo's reputation as a stable bank that it had created during the 2008 Financial Crisis and will take years if not decades to come back from. 


There are of course many stakeholders in this massive scandal starting with the clients effected both financially and emotionally. Not only did they loose their trust for banking but they had suffered severe long term money damages. Their credit scores were destroyed and many of them had mortgages unable to be paid off or now had a second mortgage. Next up are the Investors, they had put trust and money into Wells Fargo to do the right and of course ethical thing to succeed only to get wrapped up into a large scale scandal suffering large amounts money damages. Last but not least, Wells Fargo itself is a stakeholder having to pay millions in recovery, legal fees, and reconstruction of its company. They now have to work from the ground up to recover the trust of future clientele and are set years behind other major banks like Citigroup, JP Morgan and chase, and Bank of America after having to replace the CEO and four out of their sixteen chairman on the board. 


Friedman states in his theory that “The only goal of business is to profit" meaning the only obligations Well's Fargo had was to its shareholders and itself in maximizing profits. An individualist would look at this case and argue that it was not ethical for Wells Fargo to open up the false accounts because they did not stay within the rules of the game (the law). Their duty may not have to be to their clients but they had a duty to not break the law with their methods to increase profits. If Wells Fargo & Company did not get caught it would have been a very hefty payout to shareholders but it still would not have been ethical to commit the crimes they did. 

Credit and Debit accounts were used to meet
quotas set by upper management.

Kantianism founded by Immanuel Kant boils down to four basic and straight forward principles; Act Rationally, Respect People, Be motivated by good will, and Do not take advantage of others. With that being said an supporter of Kantianism would argue that Wells Fargo is unethical on every degree. Kant also believed in the formula of humanity which states "Never treat someone as a mere means to an end" which basically translates to do not exploit those around you. Wells Fargo did exactly that using their clients to open millions of accounts to boost their own profits and personal gain. By doing this Wells Fargo showed that they view their clients as a mere means or tool used to accomplish their own personal goals. 


Utilitarianism can ultimately be broken into two key points Egoism which focuses on maximizing the happiness of ones self and Altruism which focuses on maximizing the happiness of others. In order of utilitarianism to be fulfilled both requirements must be met so Wells Fargo and their actions would be deemed unethical in the stand point of an Utilitarian. Wells Fargo succeeded in maximizing personal happiness by increasing profits but they did it at the expense of their clients. One may be able to argue that they satisfied the happiness of their shareholders and that fulfills the factor of Altruism but since it was at the expense of the clients and even many employees it fails to meet the requirements needed.It is blatant that the company is only focusing on themselves rather than the overall happiness of everyone. 

Virtue Theory:

Virtue Theory in business comes down to four basic characteristics; Courage, Honesty, Temperance, and Justice. In a sense it contently took a lot of courage for Wells Fargo to pull the scandal off on this large of a scale but in doing so Wells Fargo failed to be honest with their clients and kept the fact that they were opening countless accounts in the clients name. They also had failed to show temperance or self control when handling the quota's and did whatever it took to get ahead. Justice can be found in the consequences Wells Fargo faced after being caught in the act from the stepping down of the CEO John Stumpf to the replacement of four of the sixteen board members. 


“Wells Fargo May Have Charged 500,000 Clients for Unwanted Insurance.” Fortune, fortune.com/2017/07/28/wells-fargo-loan-default-scandal/. 
Flitter, Emily, et al. “Federal Reserve Shackles Wells Fargo After Fraud Scandal.” The New York Times, The New York Times, 2 Feb. 2018, www.nytimes.com/2018/02/02/business/wells-fargo-federal-reserve.html.
            “Wells Fargo Opened a Couple Million Fake Accounts.” Bloomberg View, Bloomberg, www.bloomberg.com/view/articles/2016-09-09/wells-fargo-opened-a-couple-million-fake-accounts.
  Agnes, Melissa. “Wells Fargo Is Not Addressing The Right Questions Within Their Crisis Response.” Forbes, Forbes Magazine, 18 Oct. 2016, www.forbes.com/sites/melissaagnes/2016/09/12/wells-fargo-is-not-addressing-the-right-questions-within-their-crisis-response/2/#49d1c9cd54db.
Campbell, Elizabeth. “Chicago to Pull $25 Million From Wells Fargo After Scandal.” Bloomberg.com, Bloomberg, 3 Oct. 2016, www.bloomberg.com/news/articles/2016-10-03/chicago-to-pull-25-million-from-wells-fargo-because-of-scandal.


1 comment:

  1. Nice post Tommy. Wells Fargo is definitely in the wrong for what they did to their customers and deserve to pay for their actions. You definitely explained all the different theories in this case very well. Overall, awesome job.