Wells Fargo's Stumpf Stumbles And FINRA Fumbles

September 21, 2016

September 20, 2016, was not a good day for Wells Fargo or for its Chief Executive Officer John Stumpf, who testified before the Senate Banking Committee concerning his organization's opening of some 2 million bogus accounts. Those account openings appear to have been largely motivated by the desire of employees to meet sales goals. Stumpf stumbled through his attempts at answering the Senators' questions about who was responsible and what remedial measures would be implemented. In a rare display of bipartisanship, condemnation rolled down from both sides of the aisle. Stumpf's testimony was met with derision, his management response was called gutless, and his personal conduct was characterized as potentially criminal.

Snooze Alarm

The revelation that Wells Fargo stockbrokers and/or bankers were involved in opening accounts without their clients' authorizations forces us to consider the frightening prospect that the financial services community has tepid standards of supervision and an inept culture of problem-solving. The buck does not stop, however, at the desk of Wells Fargo's CEO. In fact, there are many accessories, conspirators, and facilitators to this ongoing inability of Wall Street to heal itself -- and the finger of blame is fairly pointed at the industry, politicians, and its regulators.  Although the current Wells Fargo debacle is a wake-up call, it is merely yet another in a long series of such warnings for Wall Street, and, frankly, such calls have historically elicited little more than the awakened party hitting the snooze alarm.

FINRA Nominates Wells Fargo Exec to Board

As recently as June 2016, the Financial Industry Regulatory Authority ("FINRA"), Wall Street's self-regulatory organization issued "Upcoming FINRA Board of Governors Election" (Election Notice, FINRA, June 21, 2016), in which the regulator announced, in part:

FINRA Nominating Committee Nominees
Pursuant to Article VII, Section 9 of the FINRA By-Laws, the FINRA Nominating Committee has nominated the following individual:

Large Firm Governors: Mary Mack, Wells Fargo Advisors

A profile of the nominee is attached

Page 3 of the June 2016 Election Notice

The attached profile asserts:

Profile of Large Firm Governor Nominee

Mary Mack is president and head of Wells Fargo Advisors, LLC. Ms. Mack leads one of the nation's largest full-service retail brokerage organizations. She is a 32-year veteran of the company and has a broad mix of brokerage/advisory, banking and finance experience. Most recently, Ms. Mack led the Financial Services Group and was responsible for the strategic direction and management of investment, advisory and banking products; the firm's research and advice model; Financial Advisor (FA) recruiting; FA productivity and development; and the client and FA platform. Joining Wells Fargo Advisors through the mergers of Wachovia and First Union, Mary Mack has held a variety of leadership positions including the head of Wealth Brokerage Services (bank/brokerage channel); leader of Wachovia's Client Partnership; director of Community Affairs; General Bank regional president; and managing director of Healthcare Corporate Banking.

A graduate of Davidson College with a bachelor's degree in International Political Economy, Ms. Mack also serves on the college's board of trustees. She has served on the board or executive committee for Johnson C. Smith University, the United Way of Central Carolinas, Junior Achievement, Childcare Resources, and the Arts & Science Council. She is a founding member of the Foundation for Fort Mill Schools.

Ms. Mack was named among the "25 Most Powerful Women in Finance" for 2014 and 2015 by American Banker magazine. Previously, she was included by that publication among the Most Powerful Women in Banking Team for two consecutive years. Ms. Mack holds Series 7, 63 and 24 registrations.

Page 5 of the June 2016 Election Notice

Mack Replaces Tolstedt

On July 12, 2016, Wells Fargo issued "Wells Fargo's Carrie Tolstedt to Retire at Year's End; Mary Mack to Succeed Her as Head of Community Banking Effective July 31" (Business Wire, July 12, 2016), which noted, in part:

A trusted colleague and dear friend, Carrie Tolstedt has been one of our most valuable Wells Fargo leaders, a standard-bearer of our culture, a champion for our customers, and a role model for responsible, principled and inclusive leadership," said John Stumpf, Wells Fargo's chairman and chief executive officer. "Because of her passion for serving our customers, wherever and however they chose to receive their banking services - online, in branches, or via mobile phones - Carrie leaves Wells Fargo uniquely positioned to continue to be a leader in retail banking, no matter how the future of banking evolves. We share in the pride that she has for the legacy, accomplishments and talent that she will leave behind."

Carrie Tolstedt was Wells Fargo's  Head of Community Banking during the time when some 2 million bogus accounts were opened. According to the July 12th Press Release, Tolstedt was not fired; to the contrary, she retired amid accolades from CEO Stumpf that characterized her as a "standard-bearer of our culture, a champion for our customers, and a role model for responsible, principled and inclusive leadership." Should I also toss in the CEO's line about how Tolstedt had a "passion for serving our customers"?

An Exciting Time . . . Indeed!

In the July 12th Press Release, Tolstedt's replacement, Mack, states:

"This is an exciting time to be in financial services, especially on the retail side of the business, where we see expanding opportunities to add value to our customers' lives, and where market trends point to new avenues for growth. For these reasons, and for the opportunity to lead the best retail banking team in the business, I am thrilled and honored," Mack said. "Carrie has been an excellent friend and colleague, and I look forward to working with her, John and Tim, and the entire senior leadership team as we work to make this transition a great success for Wells Fargo's stakeholders."

One has difficulty breathing within the context of Mack's somewhat breathless Wells Fargo boosterism:
  • An exciting time.
  • Expanding opportunities to add value to our customers' lives.
  • New avenues for growth.
  • Best retail banking team in the business.
Y'all see any mention -- any? --  by Mack about supervision, compliance, or regulation?

FINRA Reschedules Large Firm Governor Election

Only weeks after having nominated Mack to FINRA's Board of Governors, the self-regulatory organization issued "Notice of Annual Meeting of FINRA Firms and Proxy" (Election Notice, FINRA, August 19, 2016), which stated, in pertinent part:

Election of Governors

Election Notice 6/21/16 previously announced two vacancies on the FINRA Board to be filled at the upcoming annual meeting-one Small Firm Governor and one Large Firm Governor. The candidate nominated for the Large Firm Governor seat, Mary Mack of Wells Fargo Advisors, withdrew as a candidate after a change in job responsibilities. A special election will be held at a later date to fill this and a second large firm governor vacancy on the FINRA Board .  . .

Page 2 of the August 2016 Election Notice

Tone Deaf Regulator?

What should we infer from FINRA's nomination in June 2016 of Wells Fargo's retail chief to the regulator's Board of Governors? Would it be okay if I noted that the first thing that came to my mind was "tone deaf"?

What does it say about the state of Wall Street regulation if the industry's largest self-regulator was unaware of the developing account-opening apocalypse at one of its largest member firms? Is there no sharing of information among Wall Street's cops? Was FINRA clueless as to the ticking time-bomb at Wells Fargo when it nominated Mary Mack in June 2016?

If, on the other hand, FINRA was in the loop about the bogus account openings and understood the scope of the fraud, how the hell could the regulator have gone forward with the nomination of Mack? Was June 2016 the time and the place to reward Wells Fargo with the accolade of the only open Large Firm seat on FINRA's Board of Governors? If Mack had not withdrawn, does anyone doubt that FINRA would have elected her to a full-term as a large firm Governor?

New FINRA Bosses

About one week before FINRA's ill-fated announcement about Mack's nomination, the self regulator issued "FINRA Announces CEO Transition" (Press Release, June 13, 2016), in which the organization announced the appointment of new Chief Executive Officer Robert W. Cook. Thereafter, about a month afterwards, FINRA issued "John J. Brennan Elected Chairman of FINRA Board of Governors" (Press Release, July 15, 2016), in which the organization announced that it had elected John J. "Jack" Brennan, Vanguard Group Chairman Emeritus and Senior Advisor, as FINRA Chairman effective Aug. 15, 2016.

Consequently, we cannot place the blame for FINRA's horrific sense of timing and choice concerning Mack's nomination to the Board at the feet of the regulator's newly announced CEO Cook  and Chair Brennan because they had not officially taken over their respective helms. The challenge for Cook and Brennan is prospective: how they respond to the Wells Fargo developments, what lessons they learn from their organization's nomination of the troubled Wells Fargo's retail chief to the Board, and how the self-regulatory organization moves forward with the implementation of enhanced oversight of its large firms.

Bad Timing . . . Again

In contemplating some of those issues, I would direct Cook and Brennan to "Feds Slam Deutsche Bank But Next Day FINRA Nominates Executive To Its Board" (BrokeAndBroker.com Blog, May 15, 2012). As noted in pertinent part in this May 2012 commentary:

On May 11, 2012, a mere one day after the Department of Justice announced its $202 million settlement with Deutsche Bank, the Financial Industry Regulatory Authority ("FINRA") issued a press release: Election Notice: Nominees for Upcoming FINRA Board of Governors Election:

Pursuant to Article VII, Section 9 of the FINRA By-Laws, the FINRA Nominating Committee has nominated the following individuals:

Large Firm Governor: Seth H. Waugh, Chief Executive Officer, Deutsche Bank Americas

As demonstrated by FINRA's 2012 nomination of a Deutsche Bank CEO to its Board, bad timing with a large firm Board nominee is not a new problem for FINRA.  Being tone deaf is not a public relations plus.

FINRA Stylebook

Finally, as I have so often noted in my BrokeAndBroker.com Blog commentary, FINRA must reevaluate its stylebook when it comes regulatory settlements involving is large member firms when cited misconduct involves an affiliated bank. As unfolding events at Wells Fargo now demonstrate, my criticisms of the self-regulator's hide-and-seek approach to disclosure of broker-dealer/bank affiliations was on point and warranted. By way of example, please read the May 13, 2016, blog below:

= = = = = = = = = =
(BrokeAndBroker.com Blog, May 13, 2016)

I often marvel at the power and majesty of euphemisms.  For example, consider the definition of the legal term "conversion" as provided by Law.com:

n. a civil wrong (tort) in which one converts another's property to his/her own use, which is a fancy way of saying "steals." Conversion includes treating another's goods as one's own, holding onto such property which accidentally comes into the convertor's (taker's) hands, or purposely giving the impression the assets belong to him/her. This gives the true owner the right to sue for his/her own property or the value and loss of use of it, as well as going to law enforcement authorities since conversion usually includes the crime of theft.

I gotta give Law.com credit for that lovely admission that "conversion" is "a fancy way of saying 'steals.'" Unfortunately, we don't always see such candor in the official (and often officious) pronouncements from various courts, administrative and regulatory organizations, and the like. I'm not going to be a hypocrite, however, and pretend that I don't understand why public documents resort to the technically-correct lexicon.  You have to be careful in this litigious age about asserting that someone engaged in the crime of theft when no one has been criminally charged and no one has been found guilty of a crime. Nonetheless, many of us cringe when we read the tortured language used to paint the picture of what strikes us as criminal theft but frequently gets ascribed to mere civil conversion. Consider a recent FINRA regulatory settlement. It's not that the respondent stole anything. No . . . what he did was engage in conversion via unauthorized withdrawals from someone else's bank account. I mean, c'mon now, you're not really going to suggest that he stole anything, are you?

Case In Point

For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Christopher John Pierce submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Christopher John Pierce, Respondent (AWC  2016049391101, May 9, 2016).

In 2006, Pierce entered the industry and by January 2014, he was registered with FINRA member firm Wells Fargo Advisors, LLC. While registered with Wells Fargo Advisors, Pierce was also employed as a Personal Banker at the firm's affiliate bank. The AWC asserts that Pierce had no prior relevant disciplinary history.

SIDE BAR: Hmmmm . . . the AWC does not spell out the name of Wells Fargo Advisors, LLC's affiliate bank, which is merely referenced as the "affiliate bank." Wow, now there's a real stumper. I have no idea and I don't even know how or where to begin to search for the identity of that affiliate bank. I know there's something called the Wells Fargo Bank but, gee, I wonder if there's any relationship, any relationship at all, between that bank and the FINRA member firm Wells Fargo Advisors, LLC? What do you think?

Private Banking

The AWC asserts that on March 1, 2016, without the Wells Fargo affiliate bank's customer's knowledge or consent, Pierce issued an instant debit card  with a $1,500 daily withdrawal limit under that customer's name. On the same day of the card's issuance, Pierce allegedly made two unauthorized  ATM withdrawals at his branch office from the customer's account in the total amount of $1,380

Double Dip

On March 3, 2016, the customer arrived at the branch office to complain about the withdrawals and Pierce purportedly deposited $1,380 into the subject account via an unauthorized withdrawal from a second customer's account.

Kicked to the Curb

According to online FINRA BrokerCheck records as of May 13, 2016, Wells Fargo Advisors "Discharged" Pierce on March 4, 2016, based upon allegations that:

Wells Fargo Banker discharged after admitting that he issued an instant debit card linked to a customer's bank account and used it to withdrew money from the customer's bank account. It was also discovered that he withdrew money from a second customer's bank account to credit the first customer's bank account.

FINRA Sanctions

FINRA deemed Pierce's conversion of funds from the two customers as a violation of FINRA Rule 2010. In accordance with the terms of the AWC, FINRA barred Pierce from association with any FINRA member firm in any capacity. 

my daddy was a bankrobber

but he never hurt nobody

he just loved to live that way

and he loved to steal your money