Friday, April 6, 2018

Wells Fargo Creates Millions of Fake Accounts (2017)


Wells Fargo New York City Office Location

Wells Fargo & Company is an American multinational, publicly traded financial services company that is headquartered in San Francisco, California with main offices throughout the country.  By this point in time many citizens have become familiar with the scandal that has occurred at Wells Fargo Bank; however, the astonishing part of this scandal is that the company has continually acted fraudulently and unethically.  Recent reports as of late 2017 demonstrate that Wells Fargo now says that it has found a total of up to 3.5 million potential fake bank accounts and credit card accounts which is 1.4 million more than originally estimated.  Additionally, approximately 190,000 accounts received unnecessary fees which is 60,000 more than originally estimated.  The unethical behavior does not end here. It has been found that 528,000 customers were enrolled in unauthorized online bill pay, and up to 570,000 borrowers were forced into unnecessary auto insurance; about 20,000 of these customers potentially had their cars repossessed due to these insurance costs.  The primary motive behind the millions of fake accounts can be traced all the way up to the CEO and higher-level management.  John Stumpf, former CEO of Wells during the time and senior executives put tremendous sales pressure on the employees of Wells Fargo setting a target for the creation of eight accounts per customer.  This tremendous sales pressure was forced upon lower level employees at Wells Fargo resulting in the creation of millions of fake accounts which was done out of a fear that the average employee would lose his or her job if the demands of management were not met.  More recently, the stakeholders involved in this case have been focused on cleaning up the damage, holding the company accountable, and moving in the right direction.  However, accountability efforts have been futile. 

The response to the fake account scandal brings rise to a major issue in the United States associated with the banking industry which is holding accountability for unethical practices. A prime example of this issue is in the case of the Wells Fargo controversy.  There have been key governmental actions against Wells Fargo since the fake account scandal has taken place.  First, the company has been fined $185 million.  Secondly, there has been a growth cap placed on Wells.  The bank has dealt with and currently faces investigations as well as class action lawsuits.  These are steps in the right direction to mitigate the effects of Wells Fargo’s actions; however, they are not enough.  Individuals who hold the most responsibility including John Stumpf and senior management who oversaw the fraud must be appropriately indicted. While the employees at Wells who carried out the actions hold some level of responsibility, the ultimate responsibility must be targeted at Stumpf and high-level management, those individuals who essentially forced the employees and coached them to continually open up fake accounts in the names owf Wells Fargo customers.  When the statistics pertaining to profit is analyzed, the unethicality associated with this case becomes even more grueling.  John Stumpf and top-level management profited millions as a result of the surged stock price during the scandal of fake accounts.


The repercussions of this scandal have had a detrimental financial and ethical impact on individuals within the Wells Fargo Company as well as members of the community across the nation and worldwide.  The Wells Fargo fake account scandal has affected and will continue to affect millions of stakeholders including the direct customers involved in the scandalous cases, the families and friends of these customers, the employees at Wells Fargo from the CEO John Stumpf all the way down to the low-level bank employees, as well as a detrimental impact on government and society and the trust in this country associated with Wall Street banking practices.

Timeline of Wells Fargo stock price demise after news of fake account scandal

Milton Friedman’s theory of individualism states “the only goal of business is to profit, so the only obligation that the business person has is to maximize profit for the owner or the stockholders.”  This is the first premise of Freidman’s theory of individualism; it is coupled with the second principle that the goal of businesses should be to not only seek profit maximization but to achieve this goal within the constraints of the laws of society.  In analyzing the Wells Fargo fake account scandal from the ethical theory of individualism, the actions of the company and the direct perpetrators of the controversy including CEO John Stumpf and upper level management were ethically impermissible.  This is the case because while the company sought to maximize profits, it did not do so within the constraints of the law.  Wells Fargo Company broke the law by creating millions of fake accounts under customers names.  In evidence, according to the Consumer Financial Protection Bureau (CFPB), Wells Fargo was fined $100 million for the “widespread illegal practice of secretly opening unauthorized deposit and credit card accounts” (CFPB).  The Bureau also stated that Wells Fargo would pay an additional $35 million penalty to the Office of Comptroller of the Currency, and $50 million to the City and County of Los Angeles.  This demonstrates the direct violation of federal and state law committed from Wells Fargo as well as several of the consequences that the company faced.


The premise of the utilitarian ethical theory entails the notion that one should seek to maximize overall happiness and minimize overall pain.  In the case of the Wells Fargo fake account scandal, the actions committed were ethically impermissible under the utilitarian perspective because they produced greater overall unhappiness than happiness.  In analyzing the stakeholders involved in this case, the direct customers were most negatively impacted and unhappy because these were the individuals that suffered unnecessary fees and were forced to deal with the issue of fake accounts opened in their name.  Additionally, the scandal resulted in greater overall unhappiness for the company as well as the employees and management involved.  This is because the stock price plummeted after the scandal and the company was forced to pay millions of dollars in fines and has faced numerous lawsuits.  These issues have taken a detrimental toll on the company’s finances and reputation.  Furthermore, greater unhappiness than happiness resulted from the fake account scandal on the large scale of government and society.  Members of society now have to call on government officials to exert greater regulation in the financial services industry which results in increased financial efforts.  This scandal overall had a major detrimental impact on the large scale due to the fact that it has created a much higher level of mistrust in the financial banking industry.


One of the major principles of Kantianism is the Formula of Humanity which states “Act in such a way that you treat humanity in your own person or in the person of another, always at the same time as an end and never simply as a means” (Kant MM 429).  This portion of Kant’s theory states that individuals should never be used or exploited for simply serving as a method to achieve an end result.  In analyzing the Wells Fargo fake account scandal from the ethical theory of Kantianism, this case is most certainly ethically impermissible.  The actions of Wells Fargo go in direct violation of Kant’s Formula of Humanity because the company exploited and used customers through the numerous fake accounts, unnecessary fees, and unauthorized transactions in order to achieve maximum profits.  Wells Fargo management and all perpetrators involved did not act rationally because they committed and actually encouraged fraud.  Furthermore, Good Will is the idea of seeking to do what is right because it is the right thing to do.  Wells Fargo certainly did not follow Good Will.  Wells Fargo did not seek to do what was right for proper reasons.  In fact, Wells Fargo did what was wrong for the wrong reasons.

Senator Elizabeth Warren scolds John Stumpf for "gutless leadership" at hearing
Virtue Theory

The premise of virtue theory entails the idea that one should evaluate an action in respect to whether the action contributes to the individual’s or object’s virtues or whether the action contributes to its vices.  In business, there are four primary virtues including courage, honesty,  temperance, and justice.  In evaluating the fake account scandal of Wells Fargo under the virtue theory, it can be seen that the actions taken are unethical because each of the primary virtues are violated.  It is particularly helpful to analyze management’s role in the scandal.  The individuals who were supposed to be leaders at Wells Fargo did not act in a manner that exhibited courage.  This is because Wells Fargo employees feared the loss of their jobs if they did not meet sales expectations.  This also violates temperance because the sales goals by no means followed “reasonable expectations and desires” (Soloman 34).  Wells Fargo was not putting out quality services nor did they participate in fair practices which is demonstrated in their unethical actions that continued for years.  Additionally, John Stumpf, who profited over $200 million on Wells Fargo stock during the time of the scandal, was questioned by government official Elizabeth Warren.  Stumpf refused to admit his wrongful actions in the case of the account scandal and did not exhibit any type of statement that indicated he would provide restitution for the victims of the fake account scandal.

Works Cited
“Consumer Financial Protection Bureau Fines Wells Fargo $100 Million for Widespread Illegal Practice of Secretly Opening Unauthorized Accounts.” Consumer Financial Protection Bureau, Accessed on March 25, 2018.
“Elizabeth Warren Rips Into Wells Fargo CEO.” Online Video Clip. CNN. Cable News Network. Turner Broadcasting System, Inc.  Accessed on March 3, 2018.
Freed Dan. “Wells Fargo Uncovers More Fake Accounts in Drawn-Out Scandal.” Reuters. Reuters. August 31, 2017. Accessed on Feb 26.
Hamilton Jesse. “Powell Says Wells Fargo’s Growth to Be Capped for ‘Significant Period’.” Bloomberg. Bloomberg LP. March 1, 2018. Accessed on March 3, 2018.
Heltman, John. “Fed Drops Hammer on Wells Fargo as Four Board Members Ousted.” American Banker, 2 Feb. 2018, Accessed on March 25, 2018.
Kristof Kathy. “CEO Sold Millions in Wells Fargo Stock Before Fraud Revelations.” CBS News. CBS Interactive Inc. October 14, 2016.  Accessed on February 22, 2018.
Moyer Liz. “Wells Fargo Faces Grilling from Sen. Elizabeth Warren on Bungled Fee Refunds.” CNBC. CNBC LLC. February 14, 2018. Accessed on March 3, 2018
Rapoport, Michael. “Wells Fargo: Where Was the Auditor?” The Wall Street Journal. Dow Jones & Company Inc. November 1, 2016. Accessed on March 3, 2018.
Roberts, Deon. “Most of Wells Fargo Board Should Be Fired, Senator Says.” Charlotteobserver, Charlotte Observer, Accessed on March 25, 2018.

No comments:

Post a Comment