Independent Directors of the Board of Wells Fargo & Company
Sales Practices Investigation Report
April 10, 2017

 Overview of the Report
This is the report of the Independent Directors of the Board of Wells Fargo & Company on their
investigation of sales practices at the Community Bank, conducted by a four-director Oversight
Committee, assisted by independent counsel Shearman & Sterling LLP. The Independent
Directors’ goals in conducting the investigation were to understand the root causes of improper
sales practices in the Community Bank, to identify remedial actions so these issues can never be
repeated and to rebuild the trust customers place in the bank. Shearman & Sterling conducted
100 interviews and searched across more than 35 million documents.
Principal Findings
The root cause of sales practice failures was the distortion of the Community Bank’s sales
culture and performance management system, which, when combined with aggressive sales
management, created pressure on employees to sell unwanted or unneeded products to customers
and, in some cases, to open unauthorized accounts. Wells Fargo’s decentralized corporate
structure gave too much autonomy to the Community Bank’s senior leadership, who were
unwilling to change the sales model or even recognize it as the root cause of the problem.
Community Bank leadership resisted and impeded outside scrutiny or oversight and, when
forced to report, minimized the scale and nature of the problem.
The former Chief Executive Officer, relying on Wells Fargo’s decades of success with cross-sell
and positive customer and employee survey results, was too slow to investigate or critically
challenge sales practices in the Community Bank. He also failed to appreciate the seriousness of
the problem and the substantial reputational risk to Wells Fargo.
Corporate control functions were constrained by the decentralized organizational structure and a
culture of substantial deference to the business units. In addition, a transactional approach to
problem-solving obscured their view of the broader context. As a result, they missed
opportunities to analyze, size and escalate sales practice issues.
Sales practices were not identified to the Board as a noteworthy risk until 2014. By early 2015,
management reported that corrective action was working. Throughout 2015 and 2016, the Board
was regularly engaged on the issue; however, management reports did not accurately convey the
scope of the problem. The Board only learned that approximately 5,300 employees had been
terminated for sales practices violations through the September 2016 settlements with the Los
Angeles City Attorney, the OCC and the CFPB.
Reform and Accountability
The Board has taken numerous actions and supported management steps to address these issues.
Wells Fargo has replaced and reorganized the leadership of the Community Bank. It has also
eliminated sales goals and reformed incentive compensation. Centralization of control functions
is being accelerated. The Board has separated the role of the Chairman and the CEO,
strengthened the charters of Board Committees and established regular reporting to the Board by
the new Office of Ethics, Oversight and Integrity. As a result of the investigation, the Board has
terminated for cause five senior executives of the Community Bank and has imposed forfeitures,
clawbacks and compensation adjustments on senior leaders totaling more than $180 million.

 Table of Contents
Page
Introduction ................................................................................................................................ 1
I. Investigative Process .............................................................................................................. 2
II. Executive Summary ............................................................................................................ .4
The Community Bank ................................................................................................................. 4
Senior Management .................................................................................................................... 9
Corporate Control Organizations ............................................................................................... 11
The Board of Directors.............................................................................................................. 15
III. Key Factual Findings ....................................................................................................... 19
The Community Bank ............................................................................................................... 19
Senior Management .................................................................................................................. 53
Corporate Risk .......................................................................................................................... 60
The Law Department................................................................................................................. 72
Human Resources/Chief Administrative Officer ........................................................................ 79
Internal Investigations ............................................................................................................... 88
Audit… ..................................................................................................................................... 91
The Board of Directors.............................................................................................................. 97

 Introduction
As announced on September 27, 2016, the Independent Directors of the Board of Wells
Fargo & Company (“Wells Fargo”) created an Oversight Committee (the “Committee”) to
conduct a comprehensive investigation of sales practice issues that arose in Wells Fargo’s
Community Bank. This report (the “Report”) sets forth the key factual findings of that
investigation.
The Report, which has been reviewed and approved by the Independent Directors of the
Board, is divided into three parts:
•

Part I describes the investigative process;

•

Part II provides an executive summary of the key factual findings and conclusions of the
Committee;

•

Part III details the facts and circumstances that form the basis of the findings and
conclusions, and certain of the remedial steps undertaken to address them, organized
around the functional areas of Wells Fargo that had substantive contact with the
Community Bank’s sales practice issues, including the Community Bank itself, senior
management, various Wells Fargo control functions and the Board.

1

 I.
Investigative Process
On September 25, 2016, the Independent Directors created the Committee, which
consists of four Independent Directors, Stephen W. Sanger (current Chairman of the Board and
the Committee), Elizabeth A. Duke (Vice Chair of the Board), Donald M. James and Enrique
Hernandez, Jr. The Independent Directors authorized the Committee to take all actions it
deemed appropriate and necessary to examine the issues relating to improper sales practices, and
to make findings and recommendations to the Independent Directors; the Independent Directors
retained Shearman & Sterling LLP (“Shearman & Sterling”), which had been determined to be
independent of Wells Fargo, to assist the Committee in conducting the investigation.
Concurrently, the Committee was also authorized to investigate and recommend to the Board
whether to accept or reject certain derivative litigation demands made on the Board by putative
shareholders of Wells Fargo; the Board’s response to the derivative demands is not part of this
Report, and the Board will address those demands separately.
During the investigation, the Committee received regular reports from Shearman &
Sterling, including convening seven in-person meetings, several telephonic meetings and
numerous group and individual communications. Shearman & Sterling has also reported to all of
the Independent Directors at three Board meetings.
Neither the Report nor any interim findings were shared with Wells Fargo management
until April 8, 2017. Wells Fargo cooperated with the investigation by providing requested
witnesses, documents and other information.
The investigation has been extensive. Shearman & Sterling has conducted 100
interviews of current and former employees, members of Wells Fargo’s Board of Directors and
other relevant parties. Shearman & Sterling’s interviews focused primarily on senior members
2

 of management across all of the areas that had significant contact with sales practice issues. In
addition, Shearman & Sterling reviewed the product of hundreds of interviews of more junior
employees conducted by or on behalf of Wells Fargo. Shearman & Sterling also reviewed
information concerning more than 1,000 investigations of lower level employees terminated for
sales integrity violations, which Wells Fargo’s Internal Investigations group conducted.
Shearman & Sterling made hundreds of requests for documents and materials from Wells
Fargo, and received and searched across more than 35 million documents, including
communications and other materials of more than 300 custodians. Shearman & Sterling also
reviewed thousands of documents of interest designated by Wells Fargo in its own review of
millions of documents in connection with various investigations and requests from external
parties.
Shearman & Sterling also retained the services of FTI Consulting, Inc. (“FTI
Consulting”), a forensic consulting and data analytics firm, which had direct and unrestricted
access to relevant Wells Fargo account, investigations and human resources systems and
databases.

3

 II.
Executive Summary
When the Independent Directors of the Board authorized this investigation, the purpose
was to examine the root causes of sales practice abuses and to assess how issues of corporate
structure and culture as well as individual actions contributed to the injuries inflicted upon Wells
Fargo’s customers and the extraordinary damage to Wells Fargo’s brand and reputation, not
merely to determine compensation or disciplinary action. The Board did so in the spirit of
lessons to be learned, to promote accountability, to strengthen the organization and to minimize
the likelihood of future occurrences. This section of the Report summarizes the factual findings
of the investigation, which are developed in greater detail in the subsequent sections. It also sets
forth some of the key steps and corrective actions that have been and are being undertaken to
address sales practice issues and the findings of this Report.
The Community Bank
Wells Fargo, with its successful Community Bank, had a long history of strong
performance as a self-identified sales organization with a decentralized corporate structure
guided by its Vision & Values statement. While there is nothing necessarily pernicious about
sales goals, a sales-oriented culture or a decentralized corporate structure, these same cultural
and structural characteristics unfortunately coalesced and failed dramatically here. There was a
growing conflict over time in the Community Bank between Wells Fargo’s Vision & Values and
the Community Bank’s emphasis on sales goals. Aided by a culture of strong deference to
management of the lines of business (embodied in the oft-repeated “run it like you own it”
mantra), the Community Bank’s senior leaders distorted the sales model and performance
management system, fostering an atmosphere that prompted low quality sales and improper and
unethical behavior.
4

 Senior management in the Community Bank had a deep-seated adherence to its sales
model. The model generally called for significant annual growth in the number of products, such
as checking accounts, savings accounts and credit cards, sold each year. Even when challenged
by their regional leaders, the senior leadership of the Community Bank failed to appreciate or
accept that their sales goals were too high and becoming increasingly untenable.
Over time, even as senior regional leaders challenged and criticized the increasingly
unrealistic sales goals — arguing that they generated sales of products that customers neither
needed nor used — the Community Bank’s senior management tolerated low quality accounts as
a necessary by-product of a sales-driven organization. In particular, the Community Bank’s
senior leaders were concerned that tightening up too much on quality would risk lowering sales
of products that customers actively used; and, more generally, the senior leaders were reluctant
to take steps that they believed might have a negative impact on the Community Bank’s financial
performance. They also failed to adequately consider that low quality accounts could be
indicative of unauthorized accounts. It was convenient instead to blame the problem of low
quality and unauthorized accounts and other employee misconduct on individual wrongdoers and
poor management in the field rather than on the Community Bank’s sales model.
To assist the investigation, Shearman & Sterling retained FTI Consulting. The firm
analyzed various metrics to assist in determining the impact of the Community Bank’s sales
culture. First, it examined Wells Fargo’s investigations data for allegations of sales integrity
violations and associated terminations and resignations. And second, it analyzed information
relating to the rate at which the Community Bank’s customers were funding — that is, making
initial deposits into — new checking and savings accounts. While there can be many reasons a
customer might not fund an account, lower funding rates (the proportion of new accounts with

5

 more than de minimis deposits) suggest that some customers were sold accounts that they may
not have wanted or needed.
Trends in the data show, perhaps not surprisingly, that as sales goals became harder to
achieve, the number of allegations and terminations increased and the quality of accounts
declined. Thus, the number of sales integrity-related allegations and associated terminations and
resignations increased relatively steadily from the second quarter of 2007 and both peaked in the
fourth quarter of 2013, when a newspaper article brought to light improper sales practices in Los
Angeles. After the Community Bank and the corporate control functions started to focus more
resources and attention on the problem and the growth of sales goals moderated somewhat
starting in 2013, the number of sales integrity-related allegations and associated terminations and
resignations steadily fell.
This was mirrored by the funding rate. It dropped steadily, from approximately 90% in
2005 to below 80% in 2012; it then rose somewhat in 2013, continued climbing thereafter, and
exceeded 95% by 2016, paralleling Wells Fargo’s increasing focus on sales practices after 2013.
As reflected in the reduction in plan sales goals for 2013, while the Community Bank did
take steps over time to address issues associated with sales practice violations and aggressive
sales goals, those steps were incremental, implemented slowly and insufficient to address the
root cause of the problem. There was a disinclination among the Community Bank’s senior
leadership, regardless of the scope of improper behavior or the number of terminated employees,
to see the problem as systemic. It was common to blame employees who violated Wells Fargo’s
rules without analyzing what caused or motivated them to do so. Effect was confused with
cause. When Wells Fargo did identify misconduct, its solution generally was to terminate the
offending employee without considering causes for the offending conduct or determining

6

 whether there were responsible individuals who, while they might not have directed the specific
misconduct, contributed to the environment that increased the chances of its occurrence. Carrie
Tolstedt, head of the Community Bank, and certain of her senior leaders paid insufficient regard
to the substantial risk to Wells Fargo’s brand and reputation from improper and unethical sales
practices even as they failed to recognize the potential for financial or other harm to customers.
In addition, keeping the sales model intact and sales growing meant that the Community
Bank’s performance management system had to exert significant, and in some cases extreme,
pressure on employees to meet or exceed their goals. Many employees felt that failing to meet
sales goals could (and sometimes did) result in termination or career-hindering criticism by their
supervisors. Employees who engaged in misconduct most frequently associated their behavior
with sales pressure, rather than compensation incentives, although the latter contributed to
problematic behavior by over-weighting sales as against customer service or other factors.
Conversely, employees saw that the individuals most likely to be praised, rewarded and held out
as models for success were high sales performers.
This was especially true in areas where bad practices tended to disproportionately cluster,
like Los Angeles and Arizona. Senior bankers there were particularly associated with extreme
pressure, in some cases calling their subordinates several times a day to check in on sales
performance and chastising those who failed to meet sales objectives. Certain managers also
explicitly encouraged their subordinates to sell unnecessary products to their customers in an
effort to meet the Community Bank’s sales goals.
The Community Bank identified itself as a sales organization, like department or retail
stores, rather than a service-oriented financial institution. This provided justification for a
relentless focus on sales, abbreviated training and high employee turnover.

7

 Wells Fargo’s decentralized organizational structure and the deference paid to the lines of
business contributed to the persistence of this environment. Tolstedt and certain of her inner
circle were insular and defensive and did not like to be challenged or hear negative information.
Even senior leaders within the Community Bank were frequently afraid of or discouraged from
airing contrary views. Tolstedt effectively challenged and resisted scrutiny both from within and
outside the Community Bank. She and her group risk officer not only failed to escalate issues
outside the Community Bank, but also worked to impede such escalation, including by keeping
from the Board information regarding the number of employees terminated for sales practice
violations. Although they likely did so to give themselves freedom to address these issues on
their own terms, rather than to encourage improper behavior,1 the dire consequences and cost to
Wells Fargo are the same.
As this investigation confirmed, the only way definitively to address the broken sales
model and the root cause of sales practice abuses was to emphasize other metrics for
performance and to abandon exerting pressure through sales goals and sales-driven incentive
programs. With the concurrence of the Board, Wells Fargo announced on September 13, 2016,
that the Community Bank would eliminate product sales goals in the retail bank. To address
misaligned compensation incentives, in January 2017 Wells Fargo put in place a new incentive
program that focused on customer service rather than selling products.
Also, growing out of this investigation, on February 21, 2017, the Board announced the
termination for cause of four officers within the Community Bank: its Group Risk Officer, its
Head of Strategic Planning and Finance, who was primarily responsible for overseeing the sales
goals and incentive system, and two senior regional banking leaders who had headed Los
1

Tolstedt provided no explanation since she declined, on advice of counsel, to be interviewed as part of this
investigation.

8

 Angeles and Arizona and who encouraged and deployed especially improper and excessive sales
practices. In doing so, the Board accorded credit to and treated differently other senior
Community Bank leaders who made reasonable, good faith efforts to challenge and escalate
concerns over sales goals and conduct.
Previously, on September 25, 2016, the Board caused to be forfeited $19 million of
Carrie Tolstedt’s unvested equity awards and determined that she should not receive a bonus or
severance. On April 7, 2017, following consideration by the Human Resources Committee and
by the Independent Directors, it was determined that the finding made by the Board on
September 25, 2016, that cause existed for terminating Tolstedt’s employment was appropriate,
with resulting forfeiture of her outstanding stock options awards with a current intrinsic value of
approximately $47.3 million.
Senior Management
John Stumpf
On September 29, 2016, in testimony before the House Financial Services Committee,
John Stumpf stated that he is “fully accountable for all unethical sales practices in our retail
banking business” and acknowledged his failure for “not doing more sooner to address the
causes of this unacceptable activity.” While responsibility most surely does not lie with John
Stumpf alone, he rightfully acknowledged that he made significant mistakes and helped create
the culture that resulted in sales practice abuses.
After decades of success, Stumpf was Wells Fargo’s principal proponent and champion
of the decentralized business model and of cross-sell and the sales culture. His commitment to
them colored his response when sales practice issues became more prominent in 2013 and
subsequent years and led him to stand back and rely on the Community Bank to fix the problem,
even in the face of growing indications that the situation was worsening and threatened
9

 substantial reputational harm to Wells Fargo. Because it was the responsibility of Community
Bank leadership to run the business “like they owned it,” Stumpf did not engage in investigation
and critical analysis to fully understand the problem. And, as discussed below, the corporate
control functions that reported to him and upon which he relied were similarly constrained by
Wells Fargo’s decentralized model.
Stumpf’s commitment to the sales culture also led him to minimize problems with it,
even when plausibly brought to his attention. Stumpf was by nature an optimistic executive who
refused to believe that the sales model was seriously impaired. His reaction invariably was that a
few bad employees were causing issues, but that the overwhelming majority of employees were
behaving properly. He was too late and too slow to call for inspection of or critical challenge to
the basic business model.
Stumpf’s long-standing working relationship with Tolstedt influenced his judgment as
well. Tolstedt reported to Stumpf until late 2015 and he admired her as a banker and for the
contributions she made to the Community Bank over many years. At the same time, he was
aware that many doubted that she remained the right person to lead the Community Bank in the
face of sales practice revelations, including the Board’s lead independent director and the head of
its Risk Committee. Stumpf nonetheless moved too slowly to address the management issue.
On September 25, 2016, in recognition of his accountability for unacceptable retail
banking sales practices, John Stumpf agreed with the Board to forfeit all of his unvested equity
awards in the approximate amount of $41 million and to receive no annual bonus for 2016. He
resigned as CEO and Chairman on October 12, 2016. On April 7, 2017, the Board additionally
determined that Wells Fargo will claw back approximately $28 million of Stumpf’s incentive
compensation paid in March 2016 under an equity grant made in 2013.

10

 Tim Sloan
Sloan served as Chief Financial Officer from 2011 to 2014 and then as head of the
Wholesale Bank until he was promoted to President and Chief Operating Officer in November
2015. In the latter position, he became Tolstedt’s immediate supervisor and assessed her
performance over several months before deciding that she should not continue to lead the
Community Bank.
In his two earlier positions, Sloan had little contact with sales practice matters. He heard
complaints about Tolstedt, including that she was a controlling manager who was not open to
criticism and did not work well with other parts of the organization. But by virtue of his
positions and responsibilities prior to becoming President and COO, his direct involvement with
sales practice issues was limited. 2
Corporate Control Organizations
Sections of the Report below describe how Wells Fargo control functions, specifically
Corporate Risk, the Law Department, Human Resources, Internal Investigations and Audit, dealt
with sales practice issues in the Community Bank. Several common themes — again,
substantially related to Wells Fargo’s culture and structure — hampered the ability of these
organizations to effectively analyze, size and escalate sales practice issues.
First, Wells Fargo’s decentralized organizational structure meant that centralized
functions had parallel units in the Community Bank, which impeded corporate-level insight into
and influence over the Community Bank. Historically, the risk function at Wells Fargo was
highly decentralized. The line of business risk managers were answerable principally to the
heads of their businesses and yet took the lead in assessing and addressing risk within their
2

Sloan’s 2016 bonus and 2014 performance share payouts were reduced as part of the senior leadership collective
accountability actions discussed on pages 14-15.

11

 business units. The Risk Committee of the Board, consisting of the chairs of all the Board's
standing committees, was created in 2011 to oversee risk across the enterprise. This involved a
multi-year plan starting in 2013 to substantially grow Corporate Risk, to move toward
centralization of more risk functions and to enhance Corporate Risk’s ability to oversee the
management of risk in the lines of business. Consistent with this plan, the Board supported
major funding increases for Corporate Risk for 2014-2016. But, as problems with sales practices
in the Community Bank became more apparent in 2013-2015, Corporate Risk was still a work in
progress and the Chief Risk Officer had limited authority with respect to the Community Bank.
As events were unfolding, his visibility into risk issues at the Community Bank was hampered by
his dependence on its group risk officer and he was essentially confined to attempting to cajole
and persuade Tolstedt and the Community Bank to be more responsive to sales practice-related
risks.
Similarly, the decentralized structure of Human Resources contributed to a lack of
visibility into the scope and nature of sales practice problems. Almost all sales integrity cases
and issues touched upon some facet of the HR function, including with respect to employee
terminations, hiring, training, coaching, discipline, incentive compensation, performance
management, turnover, morale, work environment, claims and litigations. Despite this, there was
no coordinated effort by HR, either within the Community Bank or in Corporate HR, to track,
analyze or report on sales practice issues.
The fragmentation and decentralization of control functions needs to be and is being
addressed. In 2016, Corporate Risk realigned 4,100 risk employees from the business units to
the central risk organization, with an additional 1,100 to be realigned in 2017. Similarly, in
2016, Wells Fargo realigned and centralized various HR groups, including compensation and

12

 employee relations, so that they now report to Corporate HR rather than to the lines of business.
As a result, the head of HR in the Community Bank now reports to Corporate HR rather than to
the head of the Community Bank.
Second, and relatedly, the culture of substantial deference accorded to the lines of
business carried over into the control functions. Even when senior executives came to recognize
that sales practice issues within the Community Bank were a serious problem or were not being
addressed timely and sufficiently, they relied on Tolstedt and her senior managers to carry out
corrective actions. This culture of deference was particularly powerful in this instance since
Tolstedt was respected for her historical success at the Community Bank, was perceived to have
strong support from the CEO and was notoriously resistant to outside intervention and oversight.
Third, certain of the control functions often adopted a narrow “transactional” approach to
issues as they arose. They focused on the specific employee complaint or individual lawsuit that
was before them, missing opportunities to put them together in a way that might have revealed
sales practice problems to be more significant and systemic than was appreciated. As an
example, while HR had a great deal of information recorded in its systems, it had not developed
the means to consolidate information on sales practice issues and to report on them.
Similarly, attorneys in the Law Department’s Employment Section had visibility into the
scope and causes of sales practice misconduct and in fact made commendable attempts to
address it through, among other things, work on various committees. However, the Law
Department, particularly at its senior levels, did not discuss or appreciate the seriousness and
scale of sales practice issues within the Community Bank or fully consider whether there might
be a pattern of illegal conduct involved. Rather, the Department’s focus was on advising on

13

 discrete legal problems as they arose and on managing Wells Fargo’s exposure to specific
litigation risks.
The same holds true for Audit. Audit reviewed relevant controls and processes and
largely found them to be effective; however, while it had access to information regarding sales
practice concerns, it did not view its role to include analyzing more broadly the root cause of
improper conduct.
Finally, until as late as 2015, even as sales practices were labeled a “high risk” in
materials provided to the Risk Committee of the Board, there was a general perception within
Wells Fargo’s control functions that sales practice abuses were a problem of relatively modest
significance, the equivalent of a tolerable number of minor infractions or victimless crimes. This
underreaction to sales practice issues resulted in part from the incorrect belief, extending well
into 2015, that improper practices did not cause any “customer harm”; and “customer harm”
itself was narrowly construed to mean only financial harm such as fees and penalties. This
flawed perspective made it easy to undervalue the risk to Wells Fargo’s brand and reputation
arising from the misuse of customer information and the breaches of trust occasioned by
improper sales practices.
On February 28, 2017, the Board reduced compensation for eight current members of
Wells Fargo’s Operating Committee, including the heads of Corporate Risk, the Law
Department, Human Resources and Audit, based on senior leadership’s collective accountability
for operational and reputational risk. Annual 2016 bonuses for these individuals were eliminated
and the 2014 Performance Share Award payout was reduced by up to 50%, for an aggregate
reduction in compensation for these individuals of approximately $32 million. No further

14

 adjustments to the compensation of Operating Committee members are contemplated based on
the findings of this investigation.
The Board of Directors
In February 2014, following publication of newspaper articles critical of Wells Fargo’s
practices in Los Angeles, and continuously thereafter, management identified sales practices as a
“noteworthy risk” to the Board and Risk Committee. Before that time, sales practice issues had
not been identified to the Board as a noteworthy risk. The directors in 2014 received reports
from the Community Bank, from Corporate Risk and from Corporate Human Resources that
sales practice issues were receiving scrutiny and attention and, by early 2015, that the risks
associated with them had decreased. At the same time, as referenced above, the Risk Committee
and the Chief Risk Officer were continuing the program that had begun in 2013 to centralize and
increase the resources of Corporate Risk.
In May 2015, the Los Angeles City Attorney filed a lawsuit alleging widespread
improper sales practices at Wells Fargo branches in Los Angeles. Regulatory scrutiny
intensified as well. From May 2015 until settlements were announced in September 2016, the
Board’s and Risk Committee’s meetings addressed sales practice issues, resolving the Los
Angeles litigation, responding to regulatory concerns and remediating customer harm. The
Board and Risk Committee authorized the retention of third-party consultants to investigate sales
practices and procedures in the Community Bank and to conduct an analysis of customer harm
and remediation.
While management appropriately identified sales practice issues to the Board and Risk
Committee by way of the written noteworthy risk reports, the written and oral presentations
made to the Risk Committee in May 2015 and to the full Board in October 2015 were
inadequate. Board members believe that they were misinformed by the presentation made to the
15

 Risk Committee in May 2015 — which disclosed that 230 employees had been terminated in the
Community Bank but did not provide aggregate Community Bank-wide termination figures that
the Risk Committee had expressly requested and which were far higher. A subsequent report to
the entire Board by Tolstedt in October 2015 was widely viewed by directors as having
minimized and understated problems at the Community Bank.
In May 2016, the Board’s Audit & Examination (“A&E”) Committee received a written
presentation providing accurate termination figures for sales practice violations in the
Community Bank for 2014 and 2015: 1,327 in 2014, declining by 30% to 960 in 2015. In July,
the A&E Committee received termination figures for the first five months of 2016: 483 in the
Community Bank. Tolstedt left the Community Bank effective July 31, 2016.
On September 8, 2016, through settlements with the Consumer Financial Protection
Bureau (the “CFPB”), the Office of the Comptroller of the Currency (“OCC”) and the Los
Angeles City Attorney, the Board learned for the first time that approximately 5,300 Wells Fargo
employees had been terminated for sales practice violations between January 1, 2011, and March
7, 2016. Discontinuation of sales goals and commencement of this investigation followed
shortly thereafter.
The Committee believes that the Board’s own actions could have been improved in three
respects. First, even though the Risk Committee and Board initiated a comprehensive program
in 2013, noted above, to increase the resources and enhance the effectiveness of Corporate Risk,
Wells Fargo should have moved toward the centralization of the risk function earlier than it did.
While the advisability of centralization was subject to considerable disagreement within Wells
Fargo, events show that a strong centralized risk function is most suited to the effective
management of risk.

16

 Second, starting in February 2014 and continuing thereafter, the Board and Risk
Committee received from management assurances that Corporate Risk, HR and the Community
Bank were undertaking enhanced monitoring and otherwise were addressing sales practice
abuses, which were said to be subsiding. Management’s reports, however, generally lacked
detail and were not accompanied by concrete action plans and metrics to track plan performance.
The Risk Committee and Board should have insisted on more detailed and concrete plans, a
practice initiated this year.
Third, in light of the Board’s substantial doubts about and dissatisfaction with Tolstedt’s
leadership by the time of the October 2015 Board meeting, the Board should have been more
forceful in pushing Stumpf to change leadership so that the Community Bank could move
forward more quickly.
Finally, without waiting for completion of this investigation, the Board made several
changes to its own corporate governance. In early 2017, Wells Fargo combined Global Ethics
and Integrity, Internal Investigations and sales practices and complaint oversight into a new
Office of Ethics, Oversight, and Integrity, and the Risk Committee’s responsibilities have been
expanded to include oversight of that office. In addition, the Office of Ethics, Oversight, and
Integrity will report on its activities to the full Board at least twice a year. The Human
Resources Committee’s charter was modified to expand oversight of the incentive compensation
risk management program, with support from Corporate HR, and to increase its oversight of
terminations, culture and EthicsLine implementation. The Corporate Responsibility
Committee’s charter was also amended to require that the committee receive enhanced reporting
from management on customer complaints and allegations from other sources, such as the
EthicsLine, relating to customers. And the A&E Committee’s oversight responsibilities for legal

17

 and regulatory compliance were broadened to include the company’s compliance culture. These
steps should help to clarify Board oversight of conduct risk, provide for greater centralization of
review and oversight and augment reporting to the Board of the type of issues that contributed to
the breakdown in Wells Fargo’s sales culture.

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 III.
Key Factual Findings
The Community Bank
A.

Introduction
Wells Fargo operated on a decentralized model inherited from Norwest. Since at least

the time of the 1998 merger between the two banks, a commonplace phrase within the company
was “run it like you own it.” This guiding principle encapsulated the freedom Wells Fargo’s
lines of business traditionally had not only to determine their own business activities, but also to
independently exercise staff and control functions, such as Risk and Human Resources.
Carrie Tolstedt, who was promoted to be the head of regional banking in the Community
Bank in 2002 and the head of the Community Bank in 2007, was one of those leaders. And
while Wells Fargo’s decentralized model naturally afforded Tolstedt significant independence in
that position, her record of success and strong financial performance enabled Tolstedt to
maintain and enhance her authority.
B.

The Community Bank’s Aggressive Sales Culture
The Community Bank’s sales model emphasized sales volume and relied heavily on

consistent year-over-year sales growth. While the level of input into each year’s goals by
regional banking leaders — those responsible for particular retail banking regions — rose and
fell over time, sales goals were ultimately the responsibility of Community Bank leadership, in
particular Carrie Tolstedt and Matthew Raphaelson, the Community Bank’s head of Strategic
Planning and Finance. In many instances, Community Bank leadership recognized that their
plans were unattainable — they were commonly referred to as 50/50 plans, meaning that there
was an expectation that only half the regions would be able to meet them.

19

 Once set, the sales goals were pushed down to the regions, and ultimately to Wells Fargo
retail bank branches, and at each level in the hierarchy, employees were measured on how they
performed relative to these goals. They were ranked against one another on their performance
relative to goals, and their incentive compensation and promotional opportunities were
determined relative to those goals. That system created intense pressure to perform and, in
certain areas, local or regional managers imposed excessive pressure on their subordinates.
1.

Regional bank-wide rankings and campaigns
a.

Motivator reports

Regional bank-wide sales-reporting processes included frequent rankings against
individual, branch and regional sales goals, and against one another. Witnesses frequently cited
daily and monthly “Motivator” reports as a source of pressure. These reports contained monthly,
quarterly and year-to-date sales goals, and highlighted sales rankings down to the retail bank
district level. Circulation of the reports — and their focus on sales-based rankings — ramped up
pressure on managers, such that some “lived and died by” the Motivator results. Witnesses also
described that in some areas there was an extremely competitive environment, driven in
significant part by regular rankings. These reports were ultimately discontinued in 2014 after the
Community Bank hosted “Leadership Summits” in which regional leaders recommended
changing or eliminating Motivators due to the culture of shaming and sales pressure they
perpetuated.
b.

Retail scorecards

Similarly, retail scorecards generated significant sales pressure within the Community
Bank. The scorecards, instituted by Tolstedt when she took over the Community Bank,
measured how an employee or manager was performing compared to the sales plan. Scorecards
were segmented by business drivers and updated on a daily basis, and employees and managers
20

 could check their progress against the sales plan at any time and were actively encouraged to do
so. Certain managers made meeting scorecard requirements their sole objective, a tactic referred
to as “managing to the scorecard.” As a result, employees reporting to these managers were
consistently pressured to meet scorecard goals.
c.

Sales campaigns (including Jump into January)

Regional bank-wide sales campaigns — most significantly, the Jump into January
campaign — were also closely associated with increasing misconduct over time. Jump into
January, created in 2003, aimed to motivate employees to “start the New Year strong by
achieving and exceeding January goals.” The Community Bank imposed higher daily sales
targets on bankers in the month of January and emphasized and rewarded higher sales activity
levels. While many witnesses suggested that the initial impetus for the campaign was
appropriate, witnesses almost universally agreed that the campaign was distorted over time and
became a breeding ground for bad behavior that helped cement the sales culture’s negative
characteristics. Witnesses recalled that bankers were encouraged to make prospect lists of
friends and family members who were potential Jump into January sales targets, and often would
“sandbag” (temporarily withhold) December account openings until January in order to meet
sales targets and incentives. The pressure associated with the campaign manifested itself in
higher rates of low quality accounts, as confirmed by the “Rolling Funding Rate,” a quality
metric used by the Community Bank to track the rate at which its customers “fund” (place more
than a de minimis amount into) new checking or savings accounts.3 FTI Consulting’s analysis of
the Rolling Funding Rate showed that the Community Bank rate of funding for January was
lower than the average Community Bank monthly Rolling Funding Rate in all years starting in
3

While many reasons may explain why a customer chooses not to fund a new account, the Rolling Funding Rate
was useful in measuring the rate at which the Community Bank was making “quality” sales to its customers.

21

 2008. The January campaign also resulted in increased employee turnover and, in some areas,
no paid-time-off or training during the month.
As the Jump into January program continued, many senior regional leaders expressed
concerns over the high sales pressure it fostered and referenced the prevalence of lower quality
accounts opened in January. But, according to one witness, the Community Bank was hesitant to
end the program because Tolstedt was “scared to death” that it could hurt sales figures for the
entire year. In 2013, Jump into January was replaced with Accelerate, a sales campaign that ran
from January to March. The Accelerate campaign placed more emphasis on banker-customer
interactions and the customer experience, but some witnesses described Accelerate as feeling
like a mere “name change” from the Jump into January campaign.
2.

Regional management practices

The negative consequences of these regional bank-wide processes were exacerbated by
management in certain regions who over-emphasized the use of sales rankings and campaigns
and employed other aggressive practices. California and Arizona in particular consistently
ranked among the top states for sales practice problems, in part based on sales pressure tactics
encouraged by certain regional managers.
a.

Los Angeles

Los Angeles experienced a disproportionately high rate of sales integrity issues over
time, and certain leaders in Los Angeles were associated with creating a high-pressure
environment. Witnesses consistently described Shelley Freeman — who was Regional President
in Los Angeles until 2009, then became the Lead Regional President in Florida until 2013 — as
an aggressive sales manager who created significant sales pressure. For instance, Freeman
authored her own “motivator” emails, which featured her team’s ranking on the Community
Bank’s “Motivator” and strongly emphasized the importance of increasing sales and being
22

 number one. For example, in an August 2007 email, Freeman stated, “[t]his morning we are #15
on the motivator

and we are at 99% of solutions [products], 93% of profit and 105% of

checking. I hate numbers that start with 9! I like ones that have three digits and start with a 1, as
in 105 or 110.” Freeman was particularly aggressive in her Jump into January campaigns;
witnesses described the practice of “running the gauntlet,” in which district managers dressed up
in themed costumes, formed a gauntlet and had each manager run down the line to a whiteboard
and report the number of sales they achieved. Witnesses also stated that Freeman suggested to
subordinates that they encourage customers to sign up for products regardless of need.
After the merger with Wachovia, Wells Fargo sent Freeman to Florida. She continued to
impose significant sales pressure; according to one witness, she strongly emphasized the
importance of hitting sales goals and tolerated increased low quality accounts — as did members
of Community Bank senior leadership — as a consequence of striving for increased sales. As an
example, by September 2012 the Rolling Funding Rate for Florida had dropped to approximately
71%, lower than the Rolling Fund Rate for the entire Community Bank, which had itself
declined to approximately 77%. However, witnesses also stated that over time Freeman started
to focus more energy on sales quality. In an email she sent in 2012, several years after her move
to Florida, Freeman expressed regret for her prior adherence to stack rankings: “my experience is
that [rankings] foster[] more bad behavior than good behavior. I’m truly sorry that I spent those
first few years saying LA Metro was #1 on the motivator.”4
Freeman’s successor in Los Angeles, John Sotoodeh, also displayed a high-pressure
management style, particularly in San Diego prior to moving to Los Angeles. And Sotoodeh
presided over Los Angeles when it became the epicenter of the simulated funding phenomenon

4

Freeman was terminated for cause in connection with the Committee’s investigation on February 21, 2017.

23

 that came to light in 2013. However, multiple witnesses described Sotoodeh as having made
significant attempts to improve the sales culture in Los Angeles. He instituted an employee
recognition system which integrated customer experience scores in addition to sales
performance, and developed several new training initiatives to help employees hone their
customer service skills and reinforce sales ethics, including a program specifically addressing the
Jump into January campaign. In addition, the Rolling Funding Rate improved in Los Angeles
over time. Until 2009, the Rolling Funding Rate for Los Angeles Regional Banking was
consistently (and in many periods significantly) lower than the Community Bank’s overall
Rolling Funding Rate; after 2009, the region’s Rolling Funding Rate consistently bettered the
Community Bank’s Rolling Funding Rate.5
Lisa Stevens became the Regional President for California in 2009, then head of the West
Coast in 2010, reporting directly to Tolstedt; she was Sotoodeh’s supervisor during that time
until he left Los Angeles at the end of 2014. Like Sotoodeh, she was responsible for areas with
significant sales practice issues; indeed, as her regional leadership team acknowledged, the West
Coast region continued to be an “unfortunate leader” in sales integrity violations after her arrival.
At least in part, this resulted from an aggressive sales culture that she inherited and the continued
imposition by Community Bank leadership of significant sales growth expectations. As
described below on pages 39-43 and 64-65, however, Stevens was a vocal advocate within the
Community Bank for instituting changes to the sales goals model and to the sorts of behaviors
that the Community Bank incentivized, and she discussed her concerns with senior employees
outside the Community Bank, including Chief Risk Officer Michael Loughlin.
5

To determine whether these trends in Los Angeles were affected by simulated funding — the phenomenon in
which bankers used customer funds from one account to surreptitiously fund another account, identified in Wells
Fargo’s settlement with the CFPB on September 8, 2016 — FTI Consulting conducted an analysis backing out all
potentially simulated funding accounts identified by Wells Fargo’s consultant, PricewaterhouseCoopers. The trends
remained consistent with those described above.

24

 b.

Arizona

Pam Conboy, Arizona Regional Banking’s leader from 2007 to 2017, drove Arizona from
last place to first in Community Bank regional sales performance stack rankings within two years
of taking her position. Multiple witnesses stated that she did this through employing both
effective and appropriate management techniques but also through intense sales pressure, such as
a very heavy emphasis on rankings and sales performance. This manifested through multiple
daily calls to discuss sales results and regular “rally” days that extended the Jump into January
campaign throughout the year (thus, Fly into February; March into March; etc.). Multiple
witnesses also said that Conboy or certain of her subordinates encouraged bankers to sell
customers “duplicate accounts” regardless of actual customer need. One manager reporting to
Conboy lamented that Arizona district managers “taught branch managers how to sell same day
multiple account opens to customers with false customer needs”; another reported that “some
Managers and Bankers feel a bit uncomfortable opening multiple DDA’s [sic] on the same day
for a customer” because “it feels as though they are manipulating the sales system.” Conboy
also told subordinates that they should not overemphasize quality accounts, but should manage to
the Community Bank’s minimum quality standard in order not to miss productive sales
opportunities; Conboy stated to one district manager that “your team should be managing within
the 87.5% [Rolling Funding Rate] guideline at a store level . . . You and I have discussed the
opportunity costs of 100% funded accounts . . . my direction would be to coach your stores and
MPs to remain above the combined 87.5% [Rolling Funding Rate] . . . .”6
While witnesses stated that many regions did not mimic Arizona’s practices, Tolstedt
held Conboy up as a model for success. For example, Conboy was asked to make a presentation

6

Conboy was terminated for cause in connection with the Committee’s investigation on February 21, 2017.

25

 at a leadership conference in 2010 during which she discussed Arizona’s practices, including in
particular the use of daily “morning huddles” to discuss the previous day’s sales reports and
encouragement of district managers to call and check on branches multiple times per day.
Witnesses also said that regional leaders were sent to study Conboy’s leadership techniques and
Conboy traveled to teach them to other regions.
c.

Simulated funding

Wells Fargo’s sales practice issues first came to public attention through articles in the
Los Angeles Times that spotlighted troubling practices engaged in by some employees in Los
Angeles. Those practices included simulated funding, where an employee transferred funds from
one customer account to another, sometimes unauthorized, account (or deposited and withdrew
the employee’s own funds) to make it appear that the second account had been “funded” by the
customer. Employees did this because the number of accounts they opened and the rate at which
those accounts were funded were important to achieve sales goals and incentive compensation
targets.
In 2015, Wells Fargo retained PricewaterhouseCoopers (“PwC”) to identify, among other
things, checking and savings accounts across the Wells Fargo retail bank potentially subject to
simulated funding;7 PwC’s analysis included accounts opened in May 2011 through July 2015.
For this Report, FTI Consulting looked at account opening trends in this population of potential
simulated funding accounts over time and across geographies.8 FTI Consulting found that the

7

As identified in the September 8, 2016 CFPB Consent Order, this population consists of “1,534,280 deposit
accounts that may not have been authorized and that may have been funded through simulated funding, or
transferring funds from consumers’ existing accounts without their knowledge or consent.” Wells Fargo provided
this data to FTI Consulting; FTI Consulting did not independently test this population. While the accounts
referenced in the Consent Order were only potentially, but not necessarily, the product of simulated funding, FTI
Consulting used that population as a reasonable basis to examine the trends referenced in this section.

8

In performing its work referenced in the Report, FTI Consulting relied on data provided to it by Wells Fargo.

26

 number of potential simulated funding accounts peaked in the first quarter of 2012 and again (at
a slightly lower level) in the third quarter of 2013. The number then steadily decreased through
July 2015, the end of the review period.
When broken down by state, the potential simulated funding account population showed
that California and Arizona were the epicenters of simulated funding. California had the highest
volume of potential simulated funding accounts, followed by Arizona (Florida had the fourth
highest volume). California and Arizona were considerably higher in accounts “per employee”
(in other words, accounting for different Wells Fargo employee headcounts in different
geographies) than other states through 2013.9 Analyzing the data by examining individual Wells
Fargo retail bank regions, Los Angeles/Orange County Regional Banking and Arizona
Community Banking had the highest volume of potential simulated funding accounts. Los
Angeles/Orange County Regional Banking and Arizona Community Banking ranked first and
third, respectively, in the volume of potential simulated funding accounts on a “per employee”
basis.
C.

Performance Management and Incentive Plans Added Significant Additional Risk to the
Sales Model
1.

Performance management

How employees were hired, promoted and incentivized added significant additional risk
to the Community Bank’s sales model. Community Bank leadership regularly likened the retail
bank to non-bank retailers, a view that created a tolerance for high employee turnover.
Community Bank-wide rolling 12-month average turnover reached at least 30% in every period
from January 2011 to December 2015, and as high as 41% for the 12-month period ending in

9

This analysis excludes states with an average headcount of 30 or less during the same period.

27

 October 2012.10 Some Community Bank leaders did not view reducing turnover as a priority
because they saw high turnover as a normal aspect of a retail business. Tolstedt’s view, as
described by one witness, was that there were always people willing to work in Wells Fargo
branches.
As a result of the retail focus, many Wells Fargo branch employees were relatively
inexperienced, and many witnesses stated that together with the high-pressure environment this
contributed to employees not doing things “the right way.” In addition, witnesses said that
inexperienced bankers frequently were promoted based on sales success and became
inexperienced managers who understood that success was measured by sales performance. More
generally, witnesses consistently stated that promotions at all levels in the Community Bank
were regularly — though not exclusively or in every region — based on sales performance. To
many employees, the route to success was selling more than your peers. Conversely, witnesses
said that many employees feared being penalized by their managers for failing to meet sales
goals; while the investigation did not establish the numbers, witnesses stated that employees
were at times transferred to different roles or terminated for failing to meet sales goals.
2.

Incentive compensation

Compensation plans for branch bankers were structured such that bankers had to meet
certain threshold requirements to be eligible for incentive compensation. The thresholds varied
by employee position and changed over time. Typically there were minimum requirements for
products sold per day, daily profit, packages sold per quarter, quarterly partner referrals and/or
10

In a September 2012 report, referenced in more detail at pages 42, 64-65, Matthew Raphaelson noted that “[t]he
most recent benchmark study shows that our voluntary turnover rates are higher than other financial services
companies, but significantly lower than retailers.” Raphaelson reported that the other unidentified financial services
companies also had significant turnover rates: citing 2010 (rather than 2012) data, the report indicated that the
Community Bank’s annual turnover rate for tellers was 33%, compared to 28% for other financial services
companies; for personal bankers, 27% to 23%; for service managers, 10% to 8%; and for branch managers, 11% to
10%.

28

 the number of loans made per quarter. Once employees satisfied the minimum thresholds, they
could earn compensation based on “opportunities,” which included rewards based on the number
of products sold per day, daily profit and 11 Ways to WOW! (a customer experience metric),
among other categories. There were various tiers of incentive compensation within each
opportunity, including bronze, silver, gold and, for certain years, platinum; each tier included a
goal bankers could meet and a corresponding financial reward. The goals graduated for each
performance tier, and, as the goals went up, the payout rose. In the first quarter of 2012, for
example, a banker who achieved approximately nine qualifying daily sales could receive a $250
quarterly payout; a banker who achieved approximately 11 qualifying daily sales could receive a
quarterly payout twice that amount, and a banker who achieved 13 qualifying daily sales could
receive an $800 quarterly payout.
After 2010, Wells Fargo also aligned performance management and recognition with
sales goals, so that incentive compensation and performance rating were both associated with
sales. This effectively meant that bankers, branch managers and district managers who did not
meet sales goals not only could miss out on opportunities to earn incentive compensation, but
were also at risk of poor performance reviews. However, two witnesses stated that in around
2013 or 2014, Community Bank HR instructed that people should not be terminated for failure to
meet sales goals, and Wells Fargo transitioned into a qualitative rating system. According to one
of the witnesses, this transition was made in part because of concern that connecting sales goals
to performance rating was driving unethical behavior.
Incentive compensation for all regional bankers above the branch-banker level likewise
included a sales component. For district managers, sales were weighted at a third of total
incentive compensation requirements (other factors included a “profit proxy” and customer

29

 experience). Beginning in 2010, sales quality became an additional component (in 2010, for
instance, district managers were required to achieve a Rolling Funding Rate of 85%, or risk
having their incentive compensation reduced). Sales achievement was similarly a component of
incentive compensation requirements for more senior managers (for example, region presidents).
For these positions, sales were generally weighted at between 20 and 25% of total incentive
compensation requirements.
Many witnesses believed that incentive compensation plans overly emphasized sales
performance, and many complained to Community Bank leadership that incentive plan goals
were too high, too focused on sales and led to bad behavior. Because good performance was
deemed in large part to mean meeting or exceeding sales goals, and poor performance in many
instances led to shaming or worse, many employees believed that their future at Wells Fargo
depended on how many products they sold. In a January 2012 email to a colleague, a
Community Bank marketing leader wrote that, despite an increased emphasis on customer needs,
“we consistently put more focus on solutions, we increase the solutions goals . . . the message
[employees] are receiving is that Solutions continue to be king and everything else falls below
that.”
Ironically, in a 2004 email to Stumpf, Tolstedt acknowledged the importance of setting
compensation plans such that they incentivize appropriate behaviors. Specifically, she noted: “I
think you have to balance cross sell with the right incentive plan and other measures so that you
ensure you have quality cross sell. Many banks . . . build products that encourage the wrong
sales behavior. They encourage their sales force to sell a second account free, multiple savings
accounts free, etc. Then if you incent a team of bankers on top of that around sales per day alone
you are asking for trouble.” Tolstedt acknowledged the need to balance cross-sell, household

30

 penetration and household profitability measures, and to have a balanced incentive plan based on
units and profit. “If you look at one metric alone and don’t build an integrated model, you are
asking for low value, unfunded bad cross sell that will not add up to revenue growth or
retention.” As described herein, Tolstedt did not follow her own advice.
D.

Discovery of and Growth in Sales Practice Violations
1.

Overview

In 2002, the Community Bank took steps to address an increase in sales practice
violations, including the creation of a sales integrity task force. The task force undertook various
initiatives, including the implementation of a sales integrity training program and certification,
the modification of incentive plans to reduce the promotion of undesirable behaviors and
utilization of audit programs to identify suspicious activity. The Community Bank also began to
track funding rates to measure the quality of sales.
In 2004, a member of Wells Fargo’s Internal Investigations group drafted a memorandum
addressing sales practice issues. As described in more detail at pages 89-90 below, the
memorandum noted an increase in annual sales gaming cases — defined as the manipulation
and/or misrepresentation of sales to receive compensation or meet sales goals — from 63 in 2000
to a projected 680 in 2004. The memorandum noted a similar increase in terminations, from 21
in 2000 to a projected 223 in 2004.
Despite the recognition by 2004 of both the increasing scope of sales practice issues and
their association with sales incentives, the problem continued to grow. While some good-faith
efforts were made to address the issue, witnesses consistently stated that the Community Bank’s
leadership was unwilling to make fundamental changes — as one witness put it, there was “no
appetite to change the model” — and felt that the associated risks could be managed
appropriately by increasing training, detecting wrongdoing and punishing wrongdoers.
31

 Both within and outside the Community Bank, there was insufficient appreciation of the
impact of, or harm caused by, sales practice misconduct, due in part to the failure to frame the
issue appropriately. First, insufficient regard was paid to the effect of the violations on
customers. When individuals were terminated for sales practice violations, absent clear theft or
specific customer complaints, the potential effect on customers was not regularly assessed. Even
when Wells Fargo investigated or terminated employees following publication of the Los
Angeles Times articles in 2013, there was no adequate investigation to identify and address
injuries that customers might have suffered. While this may have been due to an incorrect
understanding of how the bank’s system in certain instances collected fees charged to an
unauthorized account from a linked authorized account, more should have been done sooner to
determine customer harm. It was not until the Los Angeles City Attorney suit in May 2015 that
it was even recognized that customer harm — in the form of fees — was possible with simulated
funding. Second, and perhaps more importantly, the Community Bank did not consider nonfinancial harm to customers resulting from the misuse of personal information or the opening of
accounts in their names without their authorization. Third, the Community Bank did not
adequately consider the significant reputational risk associated with sales practice misconduct.
The failure to frame the issue properly extended to senior management’s view that firing
1% of the Community Bank workforce every year for sales integrity violations was acceptable.
For example, in November 2013, in the wake of the first Los Angeles Times article on sales
practice issues, John Stumpf asked for data on the number of terminations associated with sales
integrity violations. When the data showed that 1% of employees had been terminated for such
violations, Stumpf, Tolstedt and other Community Bank leaders received the figure positively,
believing it proved that a vast majority of individuals were behaving appropriately. When the

32

 figure came up again in 2015, Stumpf reacted similarly in an email to Tim Sloan, detailed at
pages 55-56. Raphaelson, when presented with data showing ethics-related terminations of a
similar magnitude in 2013, wrote that it was “mind boggling to me it’s so low – I think it shows
our [employees] are significantly more ethical than the general population (no data whatsoever to
back that up, just impressionistic comment!).” The senior leaders did not consider that the 1%
represented only employees who were caught engaging in sales practice misconduct. Moreover,
even accounting for the Community Bank’s high turnover rate, firing 1% of the workforce each
year meant over time that more than 1% were engaging in terminable misconduct.
2.

ICE data

FTI Consulting examined data extracted from Wells Fargo’s Investigations Controlled
Electronically (“ICE”) database to determine how the volume of allegations and terminations
associated with sales practice misconduct trended over time. The volume of reported
allegations11 of employee involvement in sales practice-related misconduct12 steadily increased
from 288 in the second quarter of 2007 to 1,469 in the fourth quarter of 2013 (because of
significant changes in employee populations over this period, FTI Consulting also analyzed the
trend on a “per-employee” basis; it nearly tripled over this same period). Reported allegations
11

For purposes of its analysis, FTI Consulting considered each ICE record to be a unique allegation, termination or
resignation. Allegations include referrals or reports of misconduct to be investigated and substantiated by Internal
Investigations.
12

The figures referenced here are based on categorizations used by Wells Fargo Internal Investigations, which
generally designated sales integrity-related records as “Sales Integrity Violations” or, in a later period, “Sales
Practices/Incentive Plan Misconduct.” While FTI Consulting’s analyses were reliant on the accuracy of Wells
Fargo’s categorizations, both FTI Consulting and Shearman & Sterling reviewed a subset of the underlying
investigation narratives and found Wells Fargo’s categorizations generally reliable. As used here, “sales practice
misconduct” includes the following subtypes, some of which are more likely than others to be associated with
conduct that affects customers: Customer Consent; False Entries/CIP Violations; Fictitious Customer; Funding
Manipulation; Inappropriate Account Opening; Incentive Manipulation; Manipulation of Delegation of Authority;
Online Banking; Other; Product Manipulation; Reassignment of Sales Credit; Referrals; and Unnecessary Accounts.
The largest subtype by volume, “Customer Consent,” which is defined by Wells Fargo as “allegations of the
booking or sale of any banking product without the knowledge or official direct consent of the primary customer
and/or joint account/product holder,” made up 39% of total allegations over the period beginning in the first quarter
of 2008 and ending in the first quarter of 2016.

33

 then decreased to 958 in the first quarter of 2016. FTI Consulting also looked at the subset of
these allegations likely to have affected customers by backing out allegations unlikely to have
had customer impact.13 The volume of allegations rose from a low of 336 in the first quarter of
2008 to a high of 1,050 allegations in the fourth quarter of 2013 (on a “per employee” basis, the
rate doubled over this same period). There were 730 such allegations in the first quarter of 2016.
FTI Consulting performed similar analyses with respect to terminations and resignations
arising out of investigations triggered by the allegations referenced in the previous paragraph.
The trends were the same as with allegations; in the second quarter of 2007 there were 61
terminations or resignations relating to sales practice misconduct, and the number rose to a high
of 447 in the fourth quarter of 2013 (on a “per employee” basis, the rate quadrupled). The
number of terminations or resignations declined to 162 in the first quarter of 2016. Focusing on
those subtypes of sales practice misconduct most likely to be associated with conduct affecting
customers, the trends remained the same; the volume of terminations and resignations rose from
106 in the first quarter of 2008 to a high of 339 in the fourth quarter of 2013 (on a “per
employee” basis, an increase of 50%). The number then decreased to 122 in the first quarter of
2016.
To determine whether the data were consistent with other evidence showing
concentrations of misconduct in certain locations, FTI Consulting examined overall sales
practice misconduct allegations and terminations/resignations by state during the period April
2007 to March 2016. California had by far the highest number of sales practice-related

13

FTI Consulting backed out sales practice subtypes for the period beginning the first quarter of 2008 and ending
the first quarter of 2016 (the use of subtypes was not established until 2008). The excluded subtypes, identified by
Shearman & Sterling, were “Reassignment of Sales Credit” and “Referrals.” Reassignment of Sales Credit is
defined as “allegations of one team member making referral contacts or product sales and reassigning the credit(s) to
another team member in need of sales.” Referrals is defined as “invalid sales referrals gained by directing traffic, or
inappropriately received by another team member when an actual sales referral was not made.”

34

 allegations (27.9% of total) and terminations/resignations (28.2% of total); Florida had the third
highest number in both categories (9.2% and 9.1%, respectively). FTI Consulting also examined
the data on a “per employee” basis; while California was no longer an outlier, it was among the
top five states (as was Arizona with respect to allegations). 14 FTI Consulting conducted a similar
analysis, including only allegations and terminations/resignations categorized as “Customer
Consent” (opening accounts without customer authorization), over the period January 2008 to
March 2016. California (32.3% of total), Florida (8.9%) and Arizona (8.5%) had the most
Customer Consent allegations, and California (33.3% of total) and Florida (9.3%) ranked first
and third for most Customer Consent terminations/resignations. On a Customer Consent
allegations “per employee” basis, California and Arizona were among the top five states. On a
Customer Consent terminations/resignations “per employee” basis, California and Florida were
among the top five.
3.

Review of investigation descriptions in Wells Fargo’s ICE database

Separate from FTI Consulting’s quantitative analyses, Shearman & Sterling reviewed
1,341 of the individual ICE investigation records associated with employee terminations and
resignations taking place from 2008 to 2016 to better understand what motivated employees to
commit sales practice misconduct.
a.

Types of misconduct

Sales practice or sales integrity issues encompass an array of misconduct, ranging from
behavior that affected only Wells Fargo (such as claiming an improper referral credit) to
behavior that affected customers (such as opening unauthorized accounts and simulated funding).
The misconduct represented in the ICE records reviewed by Shearman & Sterling included
14

All state and region-level “per employee” analyses referenced in the Report exclude states/regions with an annual
average headcount of less than 1,000, except as noted in footnote 9.

35

 customer consent, generally employees opening unauthorized personal checking or savings
accounts for existing customers;15 falsification of bank records, generally falsifying customer
identification or contact information or forging customer signatures; funding manipulation,
generally employees funding an account held by a customer with their own money or money
from another account held by that customer; and the creation of unnecessary accounts, generally
employees opening accounts which served no customer financial need (a category added in
2015).16
Shearman & Sterling did not statistically sample the records, but focused on a crosssection related to investigations resulting in terminations or resignations and coded by Wells
Fargo as associated with activity that likely affected customers. Although managers made up a
minority of terminated/resigned employees, the review disproportionately focused on managers
to help assess where in the organization employee misconduct was being actively encouraged or
directed. Almost all terminated/resigned managers were lower level supervisors employed in
15

Sales practice concerns also have been implicated with respect to the Community Bank’s online insurance referral
program, in which customers could purchase insurance directly from third-party carriers via a link on the Wells
Fargo website and branch kiosks. In particular, in November 2016, Prudential Insurance Company of America (one
of the third-party carriers in the referral program) informed Wells Fargo that it had received a customer complaint
through its fraud hotline alleging that a Prudential simplified term life insurance policy had been purchased for a
Wells Fargo Community Bank customer without the customer’s consent, and that the customer had only become
aware of this policy when he received a cancellation notice in the mail. Wells Fargo has retained outside counsel to
conduct an investigation with respect to sales practices involving Community Bank online insurance product
referrals. That investigation is ongoing, and Shearman & Sterling is actively monitoring its progress. Insurance
referrals did count toward employee incentive compensation goals, but compared to products sold by branch bankers
the volume of insurance referred was extremely small.
16

“Off-site” applications, associated with initiatives in which Wells Fargo bankers would collect product
applications at events or workplaces outside a Wells Fargo branch, featured prominently in records relating to both
customer consent and record falsification. In the reviewed records, employees often processed these applications,
which did not require the customer to complete paperwork or provide authorization at the branch, without first
properly acquiring customer consent or relevant customer information, such as drivers’ license details. For example,
one branch banker cited explicit instructions from her branch manager to confirm customer consent only after
opening accounts. “Friends and family” accounts were also frequently referenced in the reviewed investigation
records; employees often described opening accounts for family and friends in order to meet sales goals. For
example, a branch manager had a teenage daughter with 24 accounts, an adult daughter with 18 accounts, a husband
with 21 accounts, a brother with 14 accounts and a father with 4 accounts.

36

 Wells Fargo branches such as branch managers, assistant branch managers and the like. Nine
employees senior to a branch manager were terminated or resigned between 2011 and 2015 as a
result of an investigation of sales practice misconduct; the most senior was an area president, two
levels up from a branch manager.
b.

Rationales for misconduct

A majority of terminated employees, whether branch bankers or managers, admitted to
engaging in misconduct during the investigation. They frequently claimed that sales pressure
drove them to do so. Branch-level managers often felt pressure from their supervisors to make
sales, but only rarely did they state that they were explicitly instructed to engage in misconduct.
In addition to sales pressure, branch-level managers often cited the need to help branch
employees meet individual goals or reach branch goals. For example, one branch manager
investigated for creating unauthorized debit cards for existing customers stated that he often did
so to help branch bankers reach their targets; but in the case under investigation, he ordered the
cards because of difficulty keeping his branch staffed and his need to meet branch sales goals.
In nine of the 1,341 reviewed records, investigated employees accused district managers
(one level above branch managers) of explicitly directing misconduct; for example, one district
manager, according to the investigated employee, taught personal bankers to disguise
unnecessary accounts for family members within the computerized system. In ten cases, the
investigated employee referenced a district manager as creating pressure by sending multiple
daily emails to branches. In one instance, a district manager warned an employee during
onboarding that Wells Fargo provided a challenging and intense sales environment and that he
should be prepared to “[d]o whatever it took to meet numbers unless it was downright unethical.”
Employees below the branch manager level — lower level in-branch managers and nonmanagers — frequently cited branch managers as actively directing misconduct or offering
37

 inappropriate guidance to subordinates on what constituted acceptable conduct. Non-managers
in particular attributed sales pressure to branch managers, and occasionally to district managers,
who incessantly pushed employees to make sales. As one branch employee described,
“everyone was aware of what was implied when the manager would state ‘it’s late in the day and
we need a certain number of accounts by the end of the day.’”
Some employees who engaged in funding manipulation, including simulated funding,
also cited sales quality thresholds necessary to receive sales credit as having prompted the
misconduct. In one instance, a service manager admitted to engaging in simulated funding to
receive sales credit; the investigation notes state that “[t]he WF funding policy at the time the
above listed accounts were opened was that $100 was needed to officially fund any new
checking or savings account in order for a banker to receive sales credit for opening the
accounts.” Some employees who committed bank record falsification said they were motivated
to engage in misconduct by Wells Fargo’s sales quality thresholds. In some reviewed records,
employees entered fake customer phone numbers or substituted their own email address for a
customer’s to prevent Wells Fargo from contacting customers who might provide a less than
perfect customer survey score. In one case, a branch manager falsified customer phone numbers
and instructed her employees to do the same, leading to the deletion of at least 192 customer
phone numbers, to circumvent customer survey polling.
Of note, while sales pressure and sales goals frequently figured in the investigation
descriptions, employees only infrequently referenced incentive compensation as a motivating
factor in their misconduct. While that may have been to some degree self-serving, it is consistent
with other evidence indicating that sales pressure and goals, rather than incentive compensation
directly, were the primary motivators of improper practices.

38

 c.

How misconduct spread

The review of the investigation records shed light on the manner by which improper sales
practices spread within branches or districts. Several investigated employees, particularly those
who had received promotions, had worked in multiple branches at Wells Fargo. Inappropriate
coaching techniques spread between branches as employees relocated; for example, one East
Coast branch manager described learning to improperly bundle products (for example, presenting
debit cards as “coming with” personal accounts) while working on the West Coast. Within
branches, employees learned to manipulate customer information from former or fellow
managers, resulting in a high number of violations in particular branches.
E.

Community Bank Leadership Insisted on Maintaining the Sales Model Despite Growing
Dissent from Regional Banking Leaders
The imposition of sales plans with significant annual growth and the regions’ increasing

difficulty in meeting those plans led senior Community Bank regional leadership to more
actively push back against Community Bank leadership over time. Despite the concerns being
expressed, senior Community Bank leaders paid insufficient attention to how increasingly
unattainable goals resulted in low quality accounts and, worse, improper behavior.
Sales integrity issues were particularly concentrated in the West Coast region, and several
regional leaders attributed this in part to the region’s high historical sales growth rate, which
Community Bank senior leaders were determined to continue. While not confined to the West
Coast, many of the issues involving sales practices and attitudes towards them are illustrated by
communications between West Coast regional leadership and Community Bank leadership. As
confirmed by several witnesses, West Coast Regional Bank Executive Lisa Stevens was
particularly outspoken about aggressive goals and their possible effects on sales quality and sales
integrity, as were members of her regional leadership team; while they were not the only regional

39

 leaders pushing back on sales goals and the goal setting process, they were among the most
vocal.
For example, in an October 2012 email, a member of Stevens’ regional leadership team
emailed Raphaelson regarding the 2013 sales plan, stating, “[a]s you and I have discussed, for
whatever reason, [the West Coast region] seems to be an unfortunate leader in ‘marginal sales’
and sales ethics issues and we(west Coast) [sic] need to ensure that a proper process is built to
reduce that. However, it is important that we build an appropriate sales plan that is consistent
with what we are trying to accomplish.” While West Coast leadership understood that the West
Coast had disproportionate numbers of sales practice issues, they needed the assistance of
Community Bank leadership to address it by providing appropriate plans that did not incentivize
low quality accounts and misconduct. The response of senior Community Bank leadership was
inadequate.
To help combat problems with the quality of the accounts, senior regional leaders pushed
Community Bank leaders, including Raphaelson, to stop incentivizing sales of “secondary”
checking accounts (accounts sold to customers who already had a checking account). While
some secondary accounts provide value to Wells Fargo and its customers, these leaders felt that
including them in sales and incentive plans motivated inefficient and sometimes unethical
behavior by branch bankers (as illustrated by the discussion of “duplicate” accounts in Arizona,
at page 25). For example, at a meeting with Tolstedt and West Coast leaders in August 2012,
one participant suggested to Tolstedt that the Community Bank should remove secondary
checking accounts from sales metrics, especially incentive plans, because bankers were
incentivized to sell low quality secondary accounts rather than focusing on products that would
contribute more value to Wells Fargo and its customers. And, according to a Midwest regional

40

 banking leader, at a regional leadership meeting in late 2012 where Tolstedt and her team
addressed declining daily sales, the general consensus among regional managers was to focus on
high-quality accounts; yet senior Community Bank leadership pushed the need to increase sales
per customer and the importance of secondary checking accounts.17
Regional leaders also emphasized in communications with senior Community Bank
leaders that the baseline for sales goals included a large number of low quality accounts that
were not fulfilling customer needs (multiple witnesses and email communications referred to
these as “junk” accounts). The problem built on itself: attaining growth when the prior year’s
sales included a large number of low quality accounts meant that even more low quality accounts
had to be opened to hit the increased target.
The Community Bank’s senior leaders held a different perspective from their regional
leadership colleagues. They did not recognize the regions’ concerns about sales quality and sales
integrity, did not sufficiently appreciate the relationship between low quality accounts and sales
practice issues and generally viewed resistance from regional leaders as merely an attempt to
negotiate for reduced goals. In particular, senior Community Bank leaders viewed the efforts to
address goals by West Coast leadership as simply a cover-up for poor management; to them,
sales quality and integrity issues had to be resolved through better management, not decreased
goals. Community Bank leaders also tolerated low quality accounts — despite the fact that they
cost the bank money — in part because they thought that placing too much emphasis on quality
would result in the sale of fewer active accounts, which was an important driver of the sales
model. Many witnesses stated that Raphaelson encouraged regional leaders to offer secondary

17

Regional leadership was unsuccessful in having their concerns about secondary checking accounts addressed even
as late as 2015. In that year, one regional leader wrote an email relating to removing secondary accounts from
incentive compensation plans, saying he and other regional leaders should “fight the good fight every year –
especially since I think one day we will be asked why it was part of the goal process to begin with.”

41

 accounts, espousing the philosophy that it was acceptable to sell ten low quality accounts to
realize one good one.
Management characterized these low quality accounts, including products later canceled
or never used and products that the customer did not want or need, as “slippage” and believed a
certain amount of slippage was the cost of doing business in any retail environment. In August
2012, a member of Raphaelson’s team emailed Tolstedt and Raphaelson, stating that the
products group was working on “just how much slippage is there.” He noted that “[t]hese are
mistakes (honest as in the bread-maker effect [buying something you intend to use but never do],
and dishonest – should never have been sold to the customer in the first place – wrong
customer/wrong product),” and that it is “going to [be] hard to decipher the bread maker effect
from wrong product/wrong customer piece”; and he expressed concern that “[i]f enforcement
actions [surrounding slippage] become too onerous, the risk is severe decrease in attempts. Play
becomes so safe, good opportunities are missed (the good to bad ratio).” The same employee
acknowledged in another email in September 2012 that “[m]arket and store level goals in recent
years, in many cases, were too aggressive and disconnected from realities of existing resources
and current productivity levels,” and concluded that “[t]his is a significant contributor to product
slippage, team turn-over and other inefficiencies.” When asked to explain the role of sales goals
and incentives to the Enterprise Risk Management Committee (“ERMC”), also in September
2012, Raphaelson noted that “product/customer mismatch” (which he defined as customers who
close an account after likely experiencing an “ineffective needs assessment”) was being
“managed within acceptable tolerance rates.”
In the course of these discussions about “quality,” “slippage” and “product/customer
mismatch,” senior Community Bank leadership never adequately came to terms with the fact that

42

 their sales model resulted in increasing and unacceptable levels of both low quality accounts and
employee misconduct, and that some low quality accounts were likely opened without customer
consent. Despite senior Community Bank leaders’ reluctance to acknowledge the relationship
between the goals and bad behavior, that relationship is clearly seen in the data. As sales goals
became more difficult to achieve, the rate of misconduct rose, peaking in the fourth quarter of
2013 (see pages 33-34). At the same time, quality fell; the Rolling Funding Rate — the metric
designed by the Community Bank to measure the quality of new accounts — steadily declined
from approximately 90% in 2005 to below 80% in 2012.18 Starting in 2013, it rose and exceeded
95% by 2016.19

18

As suggested by the Rolling Funding Rate, a significant number of Community Bank checking and savings
accounts were never funded. PwC identified a population of unfunded accounts opened during the period May 2011
to July 2015. Based on FTI Consulting’s examination of the transaction history of these accounts, this population
included accounts that were (i) opened but had no transaction activity, or (ii) opened with no net positive customerinitiated transaction activity (in other words, reflected only bank-initiated activity like reversed transactions or bank
fees). FTI Consulting examined those unfunded accounts to determine the extent to which customers paid fees or
other charges. FTI Consulting found that no fees or charges were paid on the vast majority of these accounts. (In
general, unfunded accounts were automatically closed within 60 to 90 days of opening. In addition, due to the
structure of the accounts, in those instances where fees or other charges were charged to an account, they were not
generally collected except in some instances where there was a linked account belonging to the customer for
overdraft protection.) 1.7% of these unfunded accounts incurred fees or charges not reversed by the bank. FTI
Consulting did not attempt to analyze any secondary impact relating to this population (i.e., overdraft fees on a
customer account that became overdrawn in connection with covering fees on an unfunded account). FTI
Consulting was unable to determine through the account data which, if any, of the unfunded accounts may have
been opened without customer authorization.

19

FTI Consulting reviewed the impact on the Community Bank cross-sell metric if all unfunded accounts identified
by PwC were removed from the population of accounts included in deriving that metric. For the period in which the
identified unfunded accounts were opened — May 2011 to July 2015 — the maximum impact in any quarter of
removing all unfunded accounts from the reported cross-sell metric was 0.02 (for example, in the quarter ending
December 2013, the impact of backing out the unfunded accounts decreases the cross-sell metric from 6.16 to 6.14).
FTI Consulting also calculated the impact of backing out the unfunded accounts together with the potential
“simulated funding” accounts and potentially unauthorized credit cards identified by PwC (the relevant accounts and
credit cards were reported in Wells Fargo’s 10-Q for the third quarter of 2016). The maximum impact in any quarter
from backing out all such accounts is a decrease of 0.04. Finally, FTI Consulting examined the Community Bank
cross-sell trend line — in other words, whether backing out all such accounts would change the direction of the
trend in the cross-sell metric (positive, negative or flat) from quarter to quarter compared to what was actually
reported. FTI Consulting found differences between the “as reported” and adjusted trends in two quarters: the
quarter ending December 2012 went from positive to flat, and the quarter ending June 2015 went from flat to
positive.

43

 F.

Remedial Measures Taken by Community Bank to Address Sales Practice Issues
1.

Measures taken to address sales practice issues

Many witnesses acknowledged — as did John Stumpf in his Congressional testimony —
that the Community Bank was far too slow in addressing sales practice issues. Indeed, the
fundamental issue — the sales goal model itself — was not fully addressed until September
2016. Still, albeit incremental and implemented gradually, the Community Bank took steps over
time to address some of the problems associated with its sales model. Community Bank HR
initiated a sales quality project group in 2011-2012 resulting in some improvements in training
and monitoring. A sales quality team, later known as Sales & Service Conduct Oversight Team
(“SSCOT”), developed as a unit within the Community Bank responsible for monitoring and
researching allegations of inappropriate sales practices. In 2012, the Quality of Sale Report Card
(“QSRC”), administered by SSCOT, was introduced to measure key quality-of-sale indicators,
including signature rates, activation rates, procedural issues (such as closures and duplicate
products) and the Rolling Funding Rate. By the end of 2013, the QSRC was incorporated into
incentive compensation plans for district managers, and the Rolling Funding Rate metric was
incorporated into incentive compensation plans for line-level bankers.
As noted above, the Community Bank modestly reduced sales goals for 2013, although
the goals were still not achievable. It also reduced average per-day product sales for branch
banker incentive compensation eligibility. In 2013, the Community Bank also began work on an
“Evolving Model” for products and service delivery, which was intended to address sales
conduct as well as other business objectives.
2.

Impact of the Los Angeles Times articles on remediation efforts

According to many witnesses, the publication of the Los Angeles Times articles regarding
the sales culture in Los Angeles acted as an accelerant to change. Goals for 2014 were reduced,
44

 as they had been in 2013, though they were still set at an unachievable level. The Community
Bank also began to set sales goals not only for the regions but also for individual branches to
avoid unreasonable allocation of goals, although this had the effect of further cutting senior
regional leaders out of the sales planning process (multiple senior regional leaders stated that
they did not feel as though they had sufficient input into their regional sales plans until 2015, for
the 2016 plan year, and even then they noted pushback). Additionally, in early 2014, product
packages (i.e., a checking account sold as a unit with other products) were eliminated to prevent
products being bundled and sold without customer need. New employees in 2015 were given a
separate and substantially lower set of sales goals for their first three to six months of
employment.
The Community Bank also revised its incentive compensation plans for bankers and its
performance management scheme. It modified performance management metrics to better
balance quantitative factors with qualitative ones, such as good customer service. According to
one witness, this was partially a result of HR’s view that connecting sales goals to performance
ratings was driving unethical behavior. Further, sales targets to achieve incentive compensation
eligibility were reduced. The list of products included in incentive compensation gradually
changed in 2014 and 2015, but it was not until 2016 that Tolstedt finally agreed to pilot a
program for removing secondary checking accounts from incentive compensation plans. That
program was not implemented before sales goals were eliminated in September 2016.
G.

Community Bank Leadership Failed to Adequately Address Underlying Problems That
Resulted in Extensive Sales Practice Violations
1.

Carrie Tolstedt

Carrie Tolstedt was the head of the Community Bank’s Central California region and
then the head of California Community and Border Banking before becoming head of the entire

45

 regional bank in 2002 and of the Community Bank in 2007. She was credited with the
Community Bank’s strong financial results over the years, and was perceived as someone who
ran a “tight ship” with everything “buttoned down.” Community Bank employee engagement
and customer satisfaction surveys reinforced the positive view of her leadership and
management. Stumpf had enormous respect for Tolstedt’s intellect, work ethic, acumen and
discipline, and thought she was the “most brilliant” Community Banker he had ever met.
Nonetheless, Tolstedt mismanaged the Community Bank’s response to the rise in sales
practice issues, failing to appreciate both the negative impact on customers and the grave risk to
Wells Fargo’s brand and reputation. There is no evidence that Tolstedt showed serious concern
about the effects of improper sales practices on Wells Fargo’s customers or that she initiated
efforts to evaluate or remediate customer harm.
Tolstedt resisted change to the Community Bank’s sales model even when confronted
with evidence that it led to low quality sales and improper sales practices. She viewed the sales
model as an engine of the Community Bank’s historical success and did not want to take steps
that could impede its operation. Instead, she reinforced the high-pressure sales culture. For
example, she praised Conboy’s high-pressure tactics and held Conboy up as a model for others to
emulate. Despite the universal criticism of the “Jump into January” program as an incubator of
low quality sales and bad sales practices, Tolstedt was “scared to death” that changing it could
hurt sales figures for the entire year and opted instead for only incremental changes.
Numerous witnesses provided a consistent account of Tolstedt’s management style: she
was “obsessed” with control, especially of negative information about the Community Bank, and
extremely reluctant to make changes. Tolstedt fostered an insular culture at the top of the
Community Bank and had an “inner circle” of staff that supported her, reinforced her views and

46

 protected her. She resisted and rejected the near-unanimous view of senior regional bank leaders
that the sales goals were unreasonable and led to negative outcomes and improper behavior.
Under her direction, the Community Bank continued to increase its sales goals until 2013, and
then lowered them only modestly.
Tolstedt reinforced a culture of tight control over information about the Community
Bank, including sales practice issues. This hampered the ability of control functions outside the
Community Bank and the Board to accurately assess the problem and work toward a solution.
Numerous witnesses referred to, and documents confirmed, the difficulties in getting information
from her senior leadership team. Tolstedt actively discouraged providing information to people
outside the Community Bank. For example, when Tolstedt learned that Lisa Stevens discussed
sales goals and pressure with Chief Risk Officer Michael Loughlin, Tolstedt instructed her to
stop speaking with him and others outside the Community Bank. When Loughlin invited Debra
Paterson, the head of Community Bank HR, to speak to the ERMC in October 2012 (a month
after the Raphaelson presentation discussed at pages 42, 64-65) to discuss employee turnover and
associated risks, Tolstedt objected to the questions posed by Loughlin. She raised numerous
arguments against providing detailed information to the ERMC, including that the committee
was intended to address only “enterprise” risks. Similarly in October 2013, when Tolstedt heard
that Loughlin or other Corporate Risk personnel had talked to Community Bank personnel about
sales practices, she sent Loughlin an email complaining about such communications taking place
without her involvement.
The Community Bank’s reporting to the ERMC and the Board demonstrated this tight
control of information and lack of transparency. Tolstedt never voluntarily escalated sales
practice issues, and, when called upon specifically to do so, she and the Community Bank

47

 provided reports that were generalized, incomplete and viewed by many as misleading. Senior
leaders of the Community Bank came before the ERMC twice (in September 2012 and April
2014) to discuss sales pressure and sales practices; on both occasions their presentations did not
provide a forthright description and assessment of the problem. Tolstedt was directly involved in
preparing presentations on sales practices to the Board’s Risk Committee and the entire Board.
Those presentations likewise did not present a forthright and complete depiction of sales practice
issues and, as discussed at pages 104-106 below, her presentation to the Risk Committee in May
2015 was misleading. By 2015, many Board members believed that she was intentionally
understating the problem which she had helped to create.
2.

Matthew Raphaelson

Matthew Raphaelson was ultimately responsible for regional bank sales goals and
supervising the sales incentive program, subject to Tolstedt’s approval. He was described as
Tolstedt’s “right hand.” Despite being a senior leader of the Community Bank, Raphaelson did
not view it as his job to police sales integrity violations.
Raphaelson was aware that excessive sales goals and pressures led to employee
misconduct, and was often confronted with objections to his goals and numbers-driven system.
Multiple witnesses stated that Raphaelson received repeated complaints that his sales goals were
too high, were too focused on the number of products sold and led to bad behavior, such as the
opening of unauthorized accounts and the sale of unnecessary products to customers.
Raphaelson had received information demonstrating that certain locations were responsible for
high numbers of unfunded accounts and accounts funded for only short periods of time —
indicia of potential inappropriate behavior, including simulated funding.
Even when told that the goals he established were leading to bad behavior, Raphaelson
was unwilling to adequately address sales goals or incentives to sell unnecessary products to
48

 customers because doing so might result in fewer sales of high quality accounts; he was willing
to tolerate poor quality accounts rather than change the sales model. While Raphaelson
authorized incremental changes over time, such as a modest reduction in goals in 2013, these
changes were inadequate.
In his interview, Raphaelson disclaimed knowledge of high levels of sales integrityrelated terminations, but as noted on page 33 above, emails show that he was aware at least by
November 2013 of approximately 1,000 sales integrity-related terminations per year and
believed that to be a favorable number.20
3.

Claudia Russ Anderson

Russ Anderson led the first line of defense for risk in the Community Bank, a particularly
significant role in light of the decentralized nature of the risk function at Wells Fargo during her
tenure as Group Risk Officer. She contributed to the development of improved systems and
processes in the Community Bank’s SSCOT unit to detect sales misconduct, and, particularly
after the Los Angeles Times articles, participated in efforts by the Community Bank to
communicate to managers that undue sales pressure and sales misconduct were not acceptable.
In most other respects, however, Russ Anderson’s performance fell far short of what was
expected and required of the senior risk officer in the Community Bank. Russ Anderson failed
to adequately assess and advocate for changes in the business practices that resulted in sales
integrity violations. She also did not adequately address customer harm arising from improper
sales practices.
Russ Anderson exhibited a lack of transparency and failed to escalate sales integrity
issues and related terminations to Wells Fargo’s Board of Directors and the ERMC. Multiple

20

Raphaelson was terminated for cause in connection with the Committee’s investigation on February 21, 2017.

49

 witnesses, including senior officers of Wells Fargo, reported that Russ Anderson was likewise
not forthcoming or candid in her communications with them, a view supported by email
communications. Instead, witnesses stated that Russ Anderson was “running interference” for
Tolstedt and filtering communications with other Wells Fargo control officers.
Russ Anderson minimized and obscured issues in reporting on the Community Bank,
including sales practices. From late 2011, Russ Anderson challenged language in the Corporate
Security portions of the reports to the A&E Committee. In one email exchange in 2012, Michael
Bacon, the head of Corporate Security (responsible for Internal Investigations), stated that Russ
Anderson “often challenge[d] the Audit and CS A&E reporting verbiage,” but that at that point,
he had “gotten good with the credible challenge” in response. Bacon noted that “our data
continues to highlight a concerning trend in the area of Sales Integrity – from the increase in
EthicsLine reports, to the increase in executive complaint letters,” and “increases in confirmed
fraud, thus, we need to continue to escalate this issue with senior leadership.” Russ Anderson
told him that his reporting made the problem sound “so much worse than it is.”
One witness called her an advocate, rather than independent and objective, when dealing
with regulators on sales practice issues. When personnel in Corporate Risk expressed the view
that a draft presentation to the ERMC by the Community Bank about sales practices did not
provide information about the “current state,” Russ Anderson wrote to another Community Bank
leader, “I am worried about putting something like that into a deck. I’d rather we did that
verbally because this deck is subject to the regulators [sic] review.” As described at page 105
below, she challenged Internal Investigations’ data on the number of employee terminations
related to sales integrity, with the result that the information was omitted from a report to the
Risk Committee.

50

 Finally, Russ Anderson moved too slowly to address sales practice issues. The head of
Corporate Security was frustrated with Russ Anderson when she took over SSCOT in
2011/2012, as he thought she would be more proactive in investigating sales integrity issues.
Though she became more focused after the Los Angeles Times articles, her actions were oriented
toward messaging and detection rather than reforming or addressing the sales model or
underlying causes. To the extent she faced resistance from Tolstedt, Russ Anderson should have
escalated the issues to Loughlin, the Chief Risk Officer, with whom she had a dotted-line
reporting relationship.21
H.

Recent Remedial Changes
Wells Fargo has implemented a system to send an automated email to a customer shortly

after the opening of a consumer or small business checking, savings or credit card account to
confirm that the account was properly authorized by the customer. In addition, revised credit
card application procedures require an applicant’s documented consent before a credit report is
pulled.
Wells Fargo has also added centralized monitoring and controls to augment its oversight
of sales practices. Monitoring includes a third-party “mystery shopper” program and additional
local, regional and corporate oversight; the increased quality assurance efforts will involve
between 15,000 and 20,000 site visits each year and an additional 600 conduct risk reviews.
In July 2016, Wells Fargo replaced Tolstedt with Mary Mack, the former head of Wells
Fargo’s brokerage business. Addressing root causes, Wells Fargo eliminated product sales goals
in the Community Bank effective October 1, 2016. In the fourth quarter of 2016, Wells Fargo
implemented a new incentive compensation plan for retail branch employees; a larger percentage

21

Russ Anderson was terminated for cause in connection with the Committee’s investigation on February 21, 2017.

51

 of compensation is now “base pay,” and incentives are focused on customer experience, with
metrics designed to emphasize customer service, retention and long-term relationship building.

52

 Senior Management
A.

John Stumpf
John Stumpf, Wells Fargo’s previous Chief Executive Officer and Chairman, joined

Norwest in 1982; Norwest merged with Wells Fargo in 1998. Stumpf held various positions at
Norwest prior to the merger, primarily focused on credit and acquisitions. At the time of the
merger, Stumpf was based in Texas and managed all bank branches in the state. Stumpf served
as the head of the southwest and western regional banking groups from 1998 to 2002; he moved
to San Francisco when he was promoted to Executive Vice President of Community Banking in
2002. Stumpf became Wells Fargo’s Chief Operating Officer in 2005 and served in that role
until he became CEO in June 2007. As CEO, Stumpf oversaw Wells Fargo’s four main business
groups: the Community Bank, Consumer Lending, Wealth & Investment Management and
Wholesale Banking. Stumpf joined the Board of Directors in 2006 and became Chairman of the
Board in January 2010. Stumpf resigned in October of 2016, at which point Tim Sloan was
elevated to CEO.
A product of Norwest, where the head of a region was the “king” or “queen” of his or her
territory, Stumpf was a supporter of decentralized management during much of his time as CEO
of Wells Fargo. As did others, Stumpf believed decentralization better managed risk by
spreading decision-making and produced better business decisions because they were made
“closer to the customer.” Over time, however, he recognized that increased cross-business
collaboration was better for the customer and Wells Fargo. He later came to support increased
centralization and authority for risk and control systems as well, but that only occurred after the
sales practice issues had emerged.
Stumpf was ultimately responsible for enterprise risk management at Wells Fargo, but
was not perceived within Wells Fargo as someone who wanted to hear bad news or deal with
53

 conflict. In accordance with the decentralized model, a deferential culture existed whereby there
was limited encouragement for the management of different businesses to challenge each other
or comment on significant issues in the other lines of business. Under Stumpf, weekly Operating
Committee meetings generally did not serve as a forum for discussion, engagement or challenge
among its members.
Much like his predecessor, Richard Kovacevich, Stumpf was also a proponent of crosssell and product sales. Kovacevich had initiated the “GR-8” program to pursue cross-sell at
Norwest and brought that focus to Wells Fargo, which had not measured cross-sell in a
programmatic way before the Norwest merger. Wells Fargo’s sales-oriented culture was
transferred to former Wachovia branches and retail bank operations following the merger with
Wachovia.
Stumpf received reports on cross-sell success and spoke frequently on its importance.
Referring to efforts to cross-sell in an email to Tolstedt and another executive vice president, he
stated that Wells Fargo “fight[s] like cats and dogs for those numbers!”
Stumpf was aware that Wells Fargo’s focus on cross-sell, combined with aggressive sales
goals and associated incentive compensation plans, could encourage employee “gaming” and
sales practice issues. In June 2015, an email between Stumpf and one of his line of business
heads discussed the potential of purely quantitative incentive plans based on sales numbers to
influence people “to make bad decisions, i.e. cheat” and, in the summer of 2015, Stumpf
challenged Tolstedt to try to manage the Community Bank without sales goals. However,
Stumpf was not engaged in managing the balance between positive and negative incentives, and
it was not until September 2016 that Wells Fargo decided to eliminate product sales goals for
Community Bank employees. Indeed, one senior member of Tolstedt’s leadership team recalled

54

 discussions of eliminating sales goals in 2012, but thought that most believed that Stumpf would
not have approved such a change due to his views of sales goals serving as an effective
motivator. And even after sales practice issues came to the fore in 2013, evidence shows that
Stumpf was concerned that bank employees not be under-motivated or unduly restricted in
pursuing sales.
Stumpf was also aware of specific sales practice issues over the years. He was notified of
the incident involving the branch in Colorado in 2002, described below at pages 73-74. Stumpf
received numerous customer and employee complaints about sales practices and sales pressure,
which he or his assistants referred to appropriate subordinates without further follow-up.
According to Wells Fargo employees, concerns about sales practices and “gaming” were raised
with Stumpf during the 2012-2014 timeframe.
Stumpf was informed by late 2013 that approximately 1,000 (or approximately 1% of)
Community Bank employees were being terminated for sales integrity violations each year.
Stumpf reacted positively to the 1% number; in his view, the fact that only 1% of Wells Fargo
employees were terminated meant that 99% of employees were doing their jobs correctly. It
does not appear that he initiated any follow-up investigation or inquiry into the issue in 2013 or
2014.
Even in 2015 and 2016, Stumpf did not appreciate the scope and severity of the problem.
He continued to publicly support the appropriateness of Wells Fargo’s sales goals and to
highlight that the vast majority of Wells Fargo employees “got it right.” An example is an email
Stumpf wrote to Sloan on May 17, 2015, after the filing of the Los Angeles City Attorney
lawsuit:
I have worked over the weekend with Carrie on the LA issue — I really feel for
Carrie and her team. We do such a good job in this area. I will fight this one to

55

 the finish. Do you know only around 1% of our people lose their jobs [for]
gaming the system, and about 2/3 of those are for gaming the monitoring of the
system, i.e. changing phone numbers, etc. Nothing could be further from the truth
on forcing products on customers. In any case, right will win and we are right.
Did some do things wrong — you bet and that is called life. This is not systemic.
In his interview, Stumpf could not recall whether in this email he was referring to 1% of
employees working across the regional bank or whether the 1% figure was limited to those
working in the Los Angeles area. In retrospect, he acknowledged that 1% was too high in either
case.
Tolstedt reported to Stumpf, and he supported her during her time as the head of
Community Bank. He was aware of Tolstedt’s shortcomings as a leader but also viewed her as
having significant strengths. Stumpf believed that the Community Bank’s positive customer
service and team member satisfaction survey results and consistently strong financial
performance reflected positively on Tolstedt’s leadership abilities. Stumpf understood that
Tolstedt could be resistant to change and inflexible, but for a long time he considered that to be
advantageous from a risk perspective; he believed her conservative decision-making was less
likely to result in hasty decisions that could expose Wells Fargo to harm.
Many have noted that Stumpf was hesitant to criticize Tolstedt and, ultimately, hesitant to
terminate her, even after the lead independent director and the Chair of the Risk Committee
suggested that he do so in December 2015. For example, according to one director, Stumpf
advised the Board of problems with Tolstedt’s leadership style, including that she was
controlling, but also praised her as the “best banker in America.” Eventually, Tim Sloan, upon
assuming the role of Chief Operating Officer, was assigned responsibility for making the
decision on whether to retain Tolstedt as head of the Community Bank.
Stumpf was accepting of Tolstedt’s flaws in part because of her other strengths and her
ability to drive results, including cross-sell. For example, in her 2009 performance review,
56

 Stumpf wrote that Tolstedt “knows the business cold – nothing gets by her” and that a
management structure she had devised was a “stroke of genius.” In 2013, Stumpf attributed the
Community Bank’s success, including in achieving “record cross-sell,” to Tolstedt’s leadership.
He also pushed Tolstedt to work to increase cross-sell when strong growth proved more elusive.
Many observers expressed their belief that Tolstedt operated the Community Bank in the way
she did because she thought Stumpf would approve. This is also supported by contemporaneous
emails, particularly with respect to the setting of aspirational sales goals and focus on improving
cross-sell.
B.

Tim Sloan
Tim Sloan joined Wells Fargo in 1987 and has held various leadership roles over the

course of his Wells Fargo career, including CAO (September 2010 to February 2011), CFO
(2011 to 2014), Head of Wholesale Banking (2014 to 2015) and COO (2015 to October 2016).
He was chosen to take over the CEO position upon Stumpf’s retirement in October 2016.
Sloan’s knowledge of sales practice issues was limited prior to 2014, but increased after the
publication of the Los Angeles Times article on sales practice issues at Wells Fargo in December
2013.
While Sloan had some awareness of sales practice issues within the Community Bank
prior to the publication of the Los Angeles Times articles, including from sporadic internal
discussions with colleagues and anonymous complaint emails, he was not aware of the
magnitude of the issues or of their potential to cause customer harm. The decentralized, “run it
like you own it” structure and ethos within Wells Fargo limited the amount of negative
information Sloan received regarding the Community Bank and the opportunities Sloan had to
engage on Community Bank issues.

57

 Sloan was also aware of Tolstedt’s management issues, including her resistance to
providing or receiving negative information. He understood that Tolstedt was a controlling
manager and was not always a good partner when working with other parts of the business. He
knew that Tolstedt did not like to have any critical discussion of her management of the
Community Bank, and could be resistant to advice to change or adapt, and was aware that this
resistance also attached to discussions of sales practice issues. Sloan had observed that Tolstedt
surrounded herself with supportive people who insulated her and told her what she wanted to
hear.
In December 2013, Sloan told the Los Angeles Times, “I’m not aware of any overbearing
sales culture.” After the publication of the Los Angeles Times article, Sloan became aware of
Wells Fargo’s efforts to detect and address sales practice issues, including that a team had been
assigned to investigate and that a larger sales practice review would then need to be done.
Sloan was also included on internal correspondence concerning the need to lower sales
goals after 2013. In a May 2014 email, Tolstedt informed Sloan and other senior executives of
adjustments to the sales plan and banker goals, noting that one of the purposes of lowering sales
goals was that it “encourages the right behaviors.” In 2015, Sloan attended Risk Committee
meetings in which sales practice violations were discussed, including a meeting where Tolstedt
noted the high inherent risk associated with the Community Bank. This was when he and others
within Wells Fargo first began to appreciate the potential for sales practices to cause financial
harm, although he understood that the level of harm was small and the matter was being
addressed.
Sloan has acknowledged that Wells Fargo should have been more focused on determining
which customers were harmed and remediating it. In a company-wide address in October 2016,

58

 he said that “[Wells Fargo] had product sales goals that sometimes resulted in behaviors and
practices that did not serve our customers’ or our team members’ interests. And we were slow to
see the harm they caused.” He added: “[D]espite our ongoing efforts to combat these
unacceptable bad practices and bad behaviors, they persisted, because we either minimized the
problem, or we failed to see the problem for what it really was – something bigger than we
originally imagined.”
Beginning in November 2015, when Sloan became President and COO, he discussed with
Tolstedt that she needed to be more open to change and to resolve the sales practice issues
quickly. Sloan, Stumpf and members of the Board agreed that Tolstedt was likely not the right
person to guide the Community Bank as it went forward — and members of the Board expressed
more pointed and immediate concerns about Tolstedt — but Sloan felt that he needed to evaluate
and work with her to help her change before reaching a final decision about her future at Wells
Fargo.
In the spring of 2016, it became clear that Tolstedt was not changing her management
practices sufficiently. During the April 2016 Board meeting, Sloan and the Board discussed
replacing her as the head of the Community Bank. Subsequently, in the June 2016 Board
meeting, Sloan reiterated his intention of replacing Tolstedt. In early July, Sloan informed
Tolstedt that she would no longer serve as the head of the Community Bank. They ultimately
agreed that she would retire.

59

 Corporate Risk
A.

Corporate Risk and the ERMC
From the time of the 1998 merger with Norwest, Wells Fargo had a decentralized

operational and management structure, with each of the lines of business operating
independently. Management of Wells Fargo traditionally believed that an organization’s risk
was borne within various lines of businesses and should be managed there. Risk management at
Wells Fargo thus generally took place in the lines of business, with the business people and the
group risk officers and their staffs as the “first line of defense.” Management believed that this
decentralized approach was a superior method for managing risk and had helped make Wells
Fargo successful, and in particular had helped Wells Fargo come through the 2008 financial
crisis relatively unscathed.
Wells Fargo’s Corporate Risk function started to be built out in the mid-2000s. In or
about 2005, an enterprise-level Operational Risk Management and Compliance group was
formed and operated under the direction of Patricia Callahan until 2007. That group focused on
AML/BSA compliance and compliance with consumer credit, home mortgage disclosure and
other laws. Sales practices and sales integrity were not within its scope.
After Callahan’s departure on a leave of absence, Loughlin, who had been the Chief
Credit Officer, had compliance added to his areas of responsibility in about 2007 and assumed
the title Chief Risk Officer in 2010. The CRO did not have any line authority or directive power
to enforce changes on the lines of business. He could, and did, try to exercise his influence to
encourage the businesses to address risk issues and to air them more broadly within the bank.
The CRO could also identify and escalate issues to the ERMC, the CEO and the Board.
The ERMC is the management committee through which significant risks were reported,
evaluated and escalated to the Board by senior members of management. Its responsibilities
60

 included overseeing the management of reputational, strategic, financial, credit, legal, market
and operational risks; serving as the primary management-level forum for the consideration and
decision-making related to Wells Fargo’s “highest priority enterprise-wide risk issues”; and
supporting and assisting the Risk Committee in carrying out its risk oversight responsibilities.
The ERMC met approximately monthly and provided the Board quarterly assessments of the
largest risks facing Wells Fargo. The membership of the ERMC changed over the years, but it
has included, among others, representatives of the lines of business, the CRO, the General
Counsel, the Chief Administrative Officer, the HR Director and the Chief Operational Risk
Officer.
B.

Reporting by Group Risk Officers to Corporate Risk
The group risk officers, including Russ Anderson in the Community Bank, reported

directly to the line of business heads and on a dotted-line basis to the then-Chief Operational
Risk Officer (“CORO”). The group risk officers did so until the fall of 2013, when that dottedline reporting relationship was transferred from the CORO to Chief Risk Officer Loughlin.
The CORO viewed her role as (i) creating and overseeing certain risk programs that the
businesses had to adhere to and (ii) stepping in to assist at the line of business level if there was a
serious breakdown that required remediation. She did not view sales practices or compensation
issues as within her mandate, but as the responsibility of the lines of business and other control
functions (the Law Department, HR, Audit and Investigations). She viewed sales gaming as a
known problem that was well-managed, contained and small; she was aware that there were
approximately 1,000 sales practice-related terminations a year in the Community Bank, but
viewed that number as relatively low, stable and not alarming given the size of the Community
Bank. Further, in her view, Tolstedt was risk-averse and jumped on issues right away. The
CORO provided reports to the A&E Committee, but these reports did not escalate the sales
61

 practice issues in the Community Bank. She did not think that sales practices might be a
significant problem until late 2013, shortly before she left Wells Fargo.
The CORO depended on risk officers in the lines of business to proactively address risk
concerns and determine whether to elevate them to the enterprise level. She requested regular
reporting from the group risk officers, but with limited success. There was tension and friction in
the relationship between the CORO and Russ Anderson. The former found Russ Anderson
frustrating to work with because of Russ Anderson’s focus on keeping control over the
management of risk within the Community Bank. Although Russ Anderson resisted efforts to
centralize control, she was not reluctant to raise problems when she determined that she needed
assistance at the enterprise level. According to Loughlin, Russ Anderson’s transparency
improved after the shift in the dotted line reporting from the CORO to the CRO in the fall of
2013, but was never satisfactory.
C.

Evolution of the Structure of the Risk Management at Wells Fargo
As described below, the Board established a Risk Committee in 2011, and thereafter

worked on rationalizing its scope and functions. Along with efforts to enhance oversight of risk
at the Board level, the CRO made significant efforts to revamp the risk function at Wells Fargo
to provide for more effective oversight and control of risks. These efforts, however, were still in
process at the time the sales practice issues became prominent in 2013 and were escalated to the
Board in 2014.
At Loughlin’s recommendation, the Board authorized the engagement of McKinsey &
Co. in early 2013 to analyze Wells Fargo’s risk function and organization and to make
suggestions for its improvement. Recommendations from the McKinsey report were presented
to the Board and reflected in part in an October 2013 memorandum to the Board describing the
corporate risk program’s aspirations, strategy and three-year plan, and in Wells Fargo’s Risk
62

 Management Framework adopted in July 2014. The enhancements of the risk organization
required substantially increased levels of funding and staffing, which the Board approved. The
McKinsey report and Wells Fargo’s risk management framework did not provide for
centralization of the risk function. Instead, they included measures for, among other things,
more effective and comprehensive oversight by Corporate Risk (the second line of defense) of
risk in the lines of business (the first line of defense).
With regard to sales practices, Corporate Risk had started to plan for more formal
oversight in late 2013, but these initiatives did not start to be implemented until 2015.
Loughlin’s October 2013 memorandum on the corporate risk program included a plan for
Corporate Risk to take a leading role in “driv[ing] a systematic and disciplined approach to
operational excellence in processes across the bank, particularly those that impact customers.”
Because “errors previously viewed as immaterial can have significant consequences, including
increased risk of financial and reputational harm” and rising customer and regulatory
expectations were especially evident in areas that touched consumers such as (among others)
sales practices, “Wells Fargo will address these risks at the source through improving the
customer experience and preventing errors, rather than remediating issues after-the-fact.” Wells
Fargo’s July 2014 Risk Management Framework provided that the Corporate Enterprise Risk
Group (led by one of Loughlin’s direct reports) was responsible for Corporate Risk’s oversight
of sales practice risk, which was a subtype of “cross-functional” risk. However, no one from
Corporate Risk was assigned responsibility as the “owner” of that area until 2015.

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 D.

Corporate Risk’s Response to Issues Concerning Sales Pressure and Improper Sales
Practices
1.

2012

Loughlin recalled that he first became aware of terminations for improper sales practices
in October 2013, when he was advised by Wells Fargo’s BSA Officer of terminations in the Los
Angeles area. However, at least as early as 2012, Loughlin was concerned about excessive sales
pressure in the Community Bank and the possibility that it could result in employee turnover and
sales of products that customers did not understand or need.
Lisa Stevens raised with Loughlin issues concerning unrealistic sales goals and her
frustration with Community Bank leadership. Loughlin asked the Community Bank to come to
an ERMC meeting on September 11, 2012, to address those and related issues. Before the
meeting, Loughlin sent Matthew Raphaelson questions that the Community Bank representatives
should address at the ERMC meeting, including “whether the emphasis on cross-sell leads to
increased turnover; how do we or the managers on the front line know that our cross sells
(solutions) are high quality and in the customer’s benefit; whether emphasizing the number of
solutions runs the risk of flogging product and irritating customers; whether we should
emphasize revenue over the number of solutions; and how we pay people for cross-sell and how
that compares to the practice of the competition.”
Raphaelson and another representative of the Community Bank made a written and oral
presentation to the ERMC on September 11, 2012. Loughlin recalled he was very dissatisfied
with the presentation, as were most of the other ERMC members. The presentation did not give
the committee a better understanding of the controls on sales goals, and it was jargon-filled,
lacking in metrics and dismissive of some of the questions posed. The written presentation did
not refer to unauthorized accounts or customer consent issues, although it did list detective and

64

 preventative controls, including monitoring and others. Loughlin had also asked Russ Anderson
to present at the ERMC in 2012, but in October 2012 decided that she need not appear.
On September 19, 2012, Loughlin attended Stevens’ West Coast presidents’ meeting and
addressed the attendees. His planned outline for the discussion included topics similar to those
Loughlin had raised with Raphaelson in connection with the ERMC meeting. In a discussion
after the meeting, two managers spoke to Loughlin about high sales pressure. Loughlin was
surprised by the allegation and suggested that the managers report those issues to Stevens, and
then to Tolstedt if Stevens was not responsive.
After the West Coast meeting, Stevens got a call from Tolstedt, who told her not to talk
to Loughlin anymore and that she needed to “toe the line.” Stevens told Loughlin about the call
with Tolstedt, and Loughlin expressed to Stevens that Tolstedt’s direction was “ridiculous.”
Loughlin had a similar conversation with Stevens in December 2015, during which Loughlin
encouraged Stevens to approach Tolstedt directly, but also told her that the instruction from
Tolstedt was “stupid” and that Stevens should feel free to continue to call him with problems.
In an apparent follow-up to the September 2012 ERMC meeting, Raphaelson sent
Loughlin an email on October 5, 2012, on the subject of “sales goals.” Raphaelson said that
setting sales goals was a “balancing act,” and that he “carr[ied] this Charlie Munger wisdom with
me in my head,” namely that “‘Low goals do cause lower performance and high goals increase
the percentage of cheating.’” Loughlin responded: “I wonder if the emphasis on individual unit
sales produces low quality sales (not really in customers best interests, but sold because someone
has to make their goals), and higher turnover than is necessary (due to pressure to make goals). I
just wonder if a revenue based approach would be better. Every store, district, etc must increase
revenue each year by x percent. Let them figure out how. Just thinking out loud.”

65

 Loughlin raised the issue of employee turnover in the Community Bank with the
Community Bank’s representative on the ERMC after the October 16, 2012 ERMC meeting. He
also invited the Community Bank HR head to come to a future ERMC meeting to discuss,
among other things, “trends in store turnover, the drivers of those trends, how we perform
compared with peers / in different geographies” and how the risk was managed. As noted above,
Tolstedt objected to the request, and Loughlin deferred the presentation.
2.

2013-2014

On June 5, 2013, the Community Bank HR head, Debra Paterson, presented to the ERMC
on employee turnover, noting that it was approximately 42% in 2012 among branch and call
center personnel, which made up 90% of the Community Bank’s employees. This rate was
described as “slightly lower than turnover for similar types of roles in the retail industry.” Later
in June 2013, Corporate Risk personnel contacted the Community Bank to discuss the possibility
of another ERMC presentation by the Community Bank to address whether “there was a linkage
between the high turnover and the quality of sales, thus, if we could improve upon the former it
would potentially enhance the quality of sales.”
In the summer of 2013, Loughlin also encouraged Tolstedt to consult with European
banks on conduct risk issues, including those related to sales practices, as U.K. banks in
particular had been subject to regulatory scrutiny for sales practices. This resulted in an August
2013 trip to London and Stockholm by Tolstedt and others in the Community Bank.
Later, after the first Los Angeles Times article was published, Tolstedt criticized Loughlin
when he or his team attempted to get information about sales practices in the Community Bank
without directly involving Tolstedt. On October 9, 2013, Tolstedt emailed Loughlin as follows:
“I would very much appreciate the team talking to me directly about any concerns on sales
practices versus arriving at broad conclusions without all the information on trends, controls, and
66

 future controls. It continues to frustrate me greatly that I am left out of the conversation. I
appreciate credible challenge but the team needs to be talking to people who have the facts and
information.” Fourteen minutes later, she followed up with an email clarifying that she
“appreciated the question,” but was just frustrated that she was not “involved in the discussion.”
Loughlin responded, “I actually don’t know what you are referring to. I put in a call to Claudia
[Russ Anderson] to see what I had done or my team had done. We’re all on the same team.”
Loughlin became more concerned about sales practices in October 2013. At that time, he
was advised of the employee terminations resulting from the Los Angeles/Orange County
investigation. He also read highly critical comments by Wells Fargo employees in an online
petition relating to sales pressure and sales practices. This heightened concern led him to make
the decision to escalate sales practices to the Board as a significant risk (which was done in early
2014, as discussed below). Also in the fall of 2013, at Stumpf’s urging, Loughlin began to meet
quarterly with Tolstedt and Russ Anderson to try to reduce sales pressure in the Community
Bank. In his 2013 self-review submitted to Stumpf, Loughlin stated: “Sales practices: we have
been pushing Carrie for some time about concerns here. She has been receptive and has
implemented some very good systems to track sales practices, but the recent LA Times article
makes me think that while process improvements are good, we have issues in hiring, training,
and management. I should have pushed harder.”
Loughlin caused sales practices to be included in the January 2014 Significant Enterprise
Risks memorandum to the Board, and again in the February 2014 Noteworthy Risk Issues report.
In addition, a February 18, 2014 memorandum from Loughlin and Hope Hardison (then the HR
Director) was provided to the Board’s Human Resources Committee (“HRC”) referring to sales
practices: “In addition, we also recommend monitoring in 2014 for sales integrity in Community

67

 Banking, specifically ongoing monitoring and review of store level quality processes. This issue
presents potential operational and reputational risk. Action plans are in progress including:
heightened monitoring processes; communication of sales quality expectations; strengthening of
control function review of incentive plans, goals, and performance management programs; and
continued focused attention on consistent and high-touch communication strategies.”
Hernandez, Chair of the Risk Committee of the Board, had spoken to Loughlin about the
sales practice issues since the December 2013 Los Angeles Times article and had instructed
Loughlin to be among the people within Wells Fargo to focus on the issue. In part as a result of
these discussions, Loughlin brought Community Bank representatives to speak about sales
practices at the ERMC meeting on April 9, 2014. Claudia Russ Anderson and a member of
Matthew Raphaelson’s team provided a written presentation and spoke at the meeting. Loughlin
found the Community Bank’s written presentation unsatisfactory, as it did not address the current
state of the problem or outline concrete steps to deal with it (as Loughlin’s deputies had asked
them to do). At the ERMC meeting, Loughlin asked how many people in the Community Bank
were terminated for sales practice violations, and was told approximately 1,000 in 2013.
Loughlin was surprised and concerned by this number, and expressed his dissatisfaction about
the presentation in the meeting.
At the Board Risk Committee’s request, Loughlin scheduled Tolstedt to appear at their
April 2014 meeting to address sales practices, which ultimately did not happen when she was
summoned for jury duty. The draft of Tolstedt’s written presentation was sent to Loughlin for
his review, and he wrote back to Tolstedt and her team: “The risk committee will want to hear
from Carrie her view on: does the pressure of cross sell goals cause bad behavior? That is what
Rick [Hernandez] asked.”

68

 At the April 29, 2014 Board meeting, Loughlin briefly reported on sales practice issues as
part of his Chief Risk Officer report. At the August 4, 2014 Risk Committee meeting, in
response to a director’s question on cross-sell risk issues, Loughlin and Stumpf discussed Wells
Fargo’s focus on ensuring its cross-sell strategies were consistent with the development of longterm customer relationships.
Over the course of 2014, Loughlin developed a more positive view regarding the efforts
of the Community Bank to address the sales practice problems. On December 9, 2014, Loughlin
emailed the Chair of the Risk Committee about agenda items for upcoming Risk Committee
meetings and, as to sales practices, said that Tolstedt had made very good changes in the
Community Bank, that there was a “good story” on the subject and that he did not think the Risk
Committee wanted to hear about good stories. (The Chair responded that the Risk Committee
nonetheless wanted to hear about sales practices.) In late 2014 to early 2015, Loughlin
participated in reviews of risk outcomes throughout Wells Fargo in order to determine riskrelated compensation impacts for 2014. In the review of the sales practice issue in the
Community Bank, Loughlin concluded that the Community Bank leaders had made significant
progress during 2014 to remove pressure from the system, and that they planned to take
additional steps in the future. Although he considered it a “close call,” he determined that no
compensation impacts were warranted for 2014, and so advised the HRC in a February 16, 2015
memorandum from him and Hardison:
As a follow up to issues identified as part of 2013 compensation process for
monitoring in 2014, we reviewed the progress against Sales Integrity issue in
Community Banking, specifically store level quality processes. We believe
appropriate actions were taken to address the issues during the performance year
and no compensation adjustment is required for the 2014 cycle.
Consistent with that determination, in February 2015, the Noteworthy Risk Issues report to the
Board downgraded the risks posed by sales practices from “High” to “Medium.”
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 Tolstedt made a written and oral presentation on sales practices to the Risk Committee on
April 28, 2015. Shortly after the meeting, Risk Committee Chair Hernandez called Loughlin and
Stumpf to tell them that Tolstedt’s presentation was highly unsatisfactory and did not address the
issues that needed to be addressed. Prompted by this, Loughlin determined that Corporate Risk
needed to become more actively involved in the oversight of sales practices and had one of his
direct reports put together a team in Corporate Risk for that purpose.
Following the filing of the Los Angeles City Attorney lawsuit on May 4, 2015, Loughlin
understood that Hernandez believed that someone outside the Community Bank needed to take
the lead on the sales practice issues. On May 8, 2015, Hernandez sent an email to the Risk
Committee, Stumpf and Loughlin about his discussions with Loughlin concerning the sales
practice issues and the plan for the upcoming Risk Committee meeting on May 19, 2015.
Hernandez told Loughlin that he sent the email to help put Loughlin in a position to take charge
of the sales practice issue.
Loughlin was on vacation during the period in which the materials for the May 19 Risk
Committee meeting were prepared and the meeting took place, as described more fully at pages
104-106 below. After the meeting, Stumpf called Loughlin and told him that the meeting had
not gone well and that the presentation for the meeting was not well done. At this time, Loughlin
determined that it was necessary to have an outside third-party conduct a comprehensive review
of the sales practice issues, which was done in 2015.
Loughlin and Corporate Risk thereafter heightened their efforts to oversee and manage
the sales practice issues throughout the rest of 2015 and into 2016. Corporate Risk’s efforts were
hampered to some extent by the absence of a formal governance structure for exercising
oversight. In late 2015, a Sales Practices Oversight (“SPO”) unit was established in Corporate

70

 Risk; among other things, it provided challenge to the first line of defense in the Community
Bank over key risk decisions and processes and coordinated with other second line oversight
functions responsible for complaints management, corporate investigations, global ethics, human
resources and employee relations. As of May 2016, the SPO unit, despite some progress,
acknowledged that there was still “considerable work to do in order to build a fully functioning,
integrated, and sustainable sales practices oversight program.”
E.

Recent Remedial Changes
The buildout of Corporate Risk is continuing and efforts to centralize the risk function

have been accelerated. In 2016, 4,100 risk employees who previously reported to the lines of
business were realigned and now report into Corporate Risk. In 2017, an additional 1,100 are
scheduled to be similarly realigned. Thus, group risk officers in the lines of business, including
the Community Bank, now report to the CRO, removing one of the key organizational
impediments that limited Corporate Risk in addressing sales practice problems in the Community
Bank.

71

 The Law Department
The Law Department is divided into several divisions, each of which is headed by a
deputy general counsel who reports to the General Counsel. Of these divisions, two had
significant involvement with sales integrity issues — the Enterprise Services Division, primarily
through its Employment Law Section, and the Litigation & Workout Division. The Law
Department’s exposure to and involvement with sales integrity issues are discussed below across
three time periods:
First, prior to the Los Angeles/Orange County investigation in mid-2013, when the
Employment Law Section of the Enterprise Services Division encountered sales integrity issues
as they worked with Human Resources personnel on terminations;
Second, between the Los Angeles Times’ publication of articles about the Los
Angeles/Orange County investigation in October and December 2013 and the filing of the Los
Angeles City Attorney lawsuit in May 2015, when Enterprise Services Division attorneys
continued to provide legal advice in connection with sales integrity issues; and
Third, following the filing of the Los Angeles City Attorney lawsuit, when the Litigation
& Workout Division of the Law Department attempted to assess and manage Well Fargo’s
exposure, including by engaging PwC to quantify the scope of the issues in terms of customer
harm and potential damages.
A.

Prior to the Los Angeles/Orange County Investigation in Mid-2013
Prior to mid-2013, lawyers in the Employment Law Section encountered sales integrity

issues as they worked with the Community Bank’s Human Resources personnel on terminations.
These lawyers were involved in an advisory capacity in investigations, decisions regarding

72

 terminations and discussions regarding the application of Wells Fargo’s fidelity bond’s
proscription against “dishonest acts.”22
Employment Section lawyers were not brought into every internal investigation; when
they were, their role primarily involved identifying and assessing litigation risk associated with
the resulting terminations. Where employment-related litigation arose out of terminations,
employment lawyers managed that litigation. Certain employment lawyers within the
Employment Law Section also participated in cross-functional teams set up to address sales
integrity issues, and, in that context, lawyers identified and conveyed concerns about
“reputational risk” to the Section head.
Employment Section lawyers encountered sales misconduct and the termination of
several employees at one time (discussed within the Law Department as “mass terminations”),
dating back at least to 2002. In summer 2002, Internal Investigations determined that almost an
entire branch in Colorado engaged in a form of “gaming” in connection with a promotional
campaign in the second quarter of 2002. Although most within Wells Fargo recall this incident
as involving improper teller referral credits, it also involved employees issuing debit cards
without customer consent. Tellers involved in the gaming scheme reported that managers
instructed them to input the referrals or supported the activity. Wells Fargo’s normal application
of its fidelity bond required termination. Several employees involved in the incident, including
managers, were terminated or resigned. Rather than terminate everyone else involved, which
would have eliminated most of the branch’s tellers and personal bankers, Wells Fargo sought and

22

A fidelity bond is a form of insurance protection that covers policyholders for losses that they incur as a result of
the fraudulent activity of specified individuals, specifically, in the case of a bank, the dishonest acts of employees.
If an employee is known to have previously committed certain dishonest acts, that employee becomes unbondable,
such that the bank is not protected against any future losses he or she causes. Because federal law requires that
national banks maintain adequate fidelity coverage for all officers and employees, an employee who is unbondable
must be terminated.

73

 obtained an exception to the fidelity bond from its underwriter. Employment Law Section
attorneys advised in connection with the incident.
Around the same time, Wells Fargo decided to reconvene a task force that had
historically advised on interpretation of the fidelity bond. The goal of the reconvened task force
was to “[d]evelop recommendations that will minimize sales integrity problems and clarify roles
and processes when they do occur.” The task force included work streams on sales integrity
training and reformation of the fidelity bond. Members of the Employment Section of the Law
Department at both line and leadership levels participated in this work.
The task force decided to “better educate our team members about gaming … and then
hold them strictly accountable.” Its work led to the roll out of a new sales integrity training
program and a reaffirmed understanding that manipulation and dishonesty were inconsistent with
Wells Fargo’s core values, and compromised Wells Fargo’s integrity as an institution entrusted
with its customers’ assets.
Additional “mass terminations” for gaming of Wells Fargo’s incentive compensation
system continued sporadically over the next ten years (in addition to individual terminations).
Employment lawyers at all levels were either made aware of or were themselves involved in
addressing these terminations. During this period, Wells Fargo’s employment lawyers generally
focused on the litigation costs of sales integrity cases in the event of lawsuits by terminated
employees. The costs of sales integrity cases, however, were generally small as a proportion of
overall employment litigation costs. (In 2013, when the head of the Employment Section
requested a report detailing this breakdown, all sales integrity cases over the previous year and a
half had settled for less than a million dollars.)

74

 Beginning around 2011, however, a recurrence of sales integrity events led employment
lawyers to recognize sales pressure in the Community Bank environment as a root cause of
gaming cases. Lawyers in the Employment Law Section and the Deputy General Counsel
responsible for the Section also began to recognize the existence of significant reputational risk
to Wells Fargo arising out of sales integrity issues, particularly mass gaming cases.
In 2011, Wells Fargo terminated 13 bankers and tellers in a branch in California for
engaging in manipulation of teller referral credits, which brought sales integrity issues back to
the fore. When questioned, the bankers and tellers charged management with being aware of,
encouraging and benefitting from their conduct. The terminated employees wrote a letter to John
Stumpf asserting that they had been unjustly terminated, and that the practice had not only been
condoned by management in their branch, but was also happening across the Community Bank.
Following these terminations, Wells Fargo convened another task force in May 2011 to
address sales integrity in the Community Bank. Three Employment Law Section attorneys
participated. The group discussed issues such as “excessive terminations and the risks associated
with them,” “mass terminations” and “reputational risk” and the effect that pressure, incentive
compensation plan structure and employees’ desire to meet sales goals had on their behavior.
Again in this context, members of the Law Department recognized reputational concerns.
Notwithstanding the growing awareness of the reputational risk associated with mass
terminations, and the fact that many of these incidents involved unauthorized products or
accounts, the perception persisted in the Law Department that sales integrity issues involved
“gaming” the Community Bank’s incentive programs and not conduct affecting customers. That
led them to underestimate the need to escalate and more directly manage sales integrity issues. 23

23

As a member of Wells Fargo’s Ethics Committee and Team Member Misconduct Executive Committee
(“TMMEC”), the General Counsel received reports in April 2012, October 2012, February 2013 and August 2013

75

 B.

From Publication of Los Angeles Times Articles in October and December 2013 to Filing
of Los Angeles City Attorney Lawsuit in May 2015
From the publication in the Los Angeles Times of articles about the Los Angeles/Orange

County investigation in October and December of 2013 until the filing of the Los Angeles City
Attorney lawsuit in May 2015, Law Department attorneys provided legal advice in connection
with two sales integrity projects. While sales practices were conveyed to the Risk Committee
and the Board in 2014 as a “noteworthy risk,” the information, discussion and advice that
accompanied that risk did not highlight or identify the potential consequences of the misconduct
that were distinctly legal in nature — e.g., a cascade of civil litigation, regulatory action from a
host of federal and state agencies and the resulting serious harm to Wells Fargo’s reputation.
In September 2013, SSCOT and Internal Investigations launched an investigation into the
Los Angeles/Orange County regional bank as a result of sales quality reports that identified
unusual funding and phone number change activity. At the time, simulated funding was
considered to be a new and different form of gaming behavior.
Although some line-level employment lawyers provided advice and guidance in the
course of the investigation, its significance was not escalated, and senior employment attorneys
only learned details of the investigation after the media began to inquire about the terminations.
At that point, in early October 2013, the then-head of the Enterprise Services Division and the
head of the Employment Law Section became concerned at this lack of escalation by the linelevel attorneys.
At the end of October, the Head of Enterprise Services briefed General Counsel James
Strother and later CRO Loughlin about the investigation. The Law Department did not further

about high or increasing numbers of sales integrity complaints and cases. The August 2013 report was the first to
delineate the specific types of conduct that fell under the category of “sales integrity” issues.

76

 escalate the existence or details of the investigation to the Board or any Board Committees at that
time.
Over the following 18 months, attorneys in the Law Department participated actively in
two main work streams designed to address sales integrity issues: the “Evolving Model”
initiative, referenced at page 44, and the Core Team. The Core Team was created in the wake of
the Los Angeles/Orange County investigation to ensure consistency in the implementation of
terminations following the first phase of that investigation.
C.

Following Commencement of the Los Angeles City Attorney Lawsuit
On May 4, 2015, the Los Angeles City Attorney filed a lawsuit against Wells Fargo

alleging that Wells Fargo set unrealistic sales goals, which pressured employees to resort to
abusive and fraudulent tactics to meet their targets, and that Wells Fargo profited through fees
levied on customers. Regulatory inquiries followed; the Law Department moved directly into
litigation-management mode. Strother chose the head of the Law Department’s General
Litigation Section, who had joined Wells Fargo three months earlier, to manage the litigation (in
conjunction with outside counsel). The Law Department and the Community Bank also received
a request from the Chair of the Risk Committee to brief the committee about the lawsuit at the
committee’s next meeting on May 19, 2015. The preparation of materials and the outcome of
that request are discussed in detail at pages 104-106 below.
The lawsuit’s allegations led the Law Department attorneys and others within Wells
Fargo to consider whether employees’ “gaming” behavior carried with it the potential of
customer harm. Consequently, the Community Bank and the Law Department collectively
began to work with the Community Bank’s deposits team to better understand that issue. When
it became clear that a full understanding of the scope of possible harm would require data
analysis, the Law Department engaged PwC to assist it.
77

 Nevertheless, there continued to be a lack of recognition within the Law Department (as
in other parts of Wells Fargo) about the significance of the number of sales integrity
terminations, and the potential reputational consequences associated with that number, as late as
the settlement of the Los Angeles City Attorney lawsuit and regulatory consent decrees in
September 2016. The Law Department’s focus was principally on quantifiable monetary costs
— damages, fines, penalties, restitution. Confident those costs would be relatively modest, the
Law Department did not appreciate that sales integrity issues reflected a systemic breakdown in
Wells Fargo’s culture and values and an ongoing failure to correct the widespread breaches of
trust in the misuse of customers’ personal data and financial information.

78

 Human Resources/Chief Administrative Officer
A.

Decentralization of the Human Resources Function at Wells Fargo
As with Risk, the HR function at Wells Fargo was decentralized, with most HR

responsibilities and functions embedded in the lines of business. The HR heads in the lines of
business reported to the business heads rather than to the Corporate HR Director. As a result of
Wells Fargo’s historical emphasis on decentralization, and the resulting autonomy of the
Community Bank in its HR-related activities, Corporate HR had limited authority and influence
over, and limited visibility into, the Community Bank. The Community Bank was not
accustomed to involving Corporate HR in its discussions and decisions and was generally
protective and defensive in keeping control of HR-related activities within the line of business.
Almost all of the sales integrity cases and issues touched some facet of the HR function
in some way, including with respect to employee terminations, hiring, training, coaching,
discipline, incentive compensation, performance management, turnover, morale, work
environment, claims and litigation. Despite this, while HR collectively had a great deal of
information recorded in its systems, there was no coordinated effort by HR, in the Community
Bank or at the enterprise level, to track or size the sales practice issues or to report on them.
B.

Community Bank HR
The problem with sales practices in the Community Bank persisted over several years

despite efforts by the Community Bank and its embedded HR function to improve training and
detection of misconduct. While recognizing many of the serious issues posed by sales pressure
and improper sales practices, the HR function in the Community Bank was either unable or
unwilling to effectively challenge Community Bank leadership on the sales model that resulted
in the sales practice issues, and did not effectively escalate the issues outside the Community
Bank.
79

 Starting in at least 2002, Community Bank HR participated in efforts to stem sales
practice issues. At Tolstedt’s direction, a task force was established in 2002 to address the
increasing focus on sales integrity issues in regional banking and to develop recommendations
that would minimize them, to identify processes to handle issues when they arose and to clarify
roles in the process. The task force created training materials for managers and employees,
including materials relating to “Rules of the Road” for everyday sales scenarios, Code of Ethics
and bond requirements, appropriate and inappropriate sales activity, consequences of gaming and
methods to ask questions or report issues.
Debra Paterson was the head of HR in the Community Bank from April 2009 to
September 2014. While she recognized negative effects of the sales pressure and improper sales
practice issues and made efforts to address them, she was either unwilling or unable to
effectively challenge Tolstedt with respect to the sales model that resulted in the problems.24
In 2011, Paterson initiated a sales integrity project to study and offer recommendations
concerning sales integrity issues in the Community Bank. At that time, Paterson and Tolstedt
were concerned about the number of terminations associated with sales integrity violations and
wanted to lower turnover in the Community Bank. The project leader was the head of Employee
Relations (“ER”) in Community Bank HR, and the project team included representatives from
Community Bank HR, Corporate ER, Internal Investigations, Community Bank Sales and
Service Development, Compliance and the Law Department. The team’s objectives included
identifying the key drivers of inappropriate sales behavior, identifying tools to manage the risk

24

Paterson, like Tolstedt, declined to be interviewed, and her interactions with Tolstedt on this subject have not been
confirmed.

80

 more proactively, and determining any recommended changes to the Community Bank’s
programs, including incentive compensation.
The work of the project team effectively concluded on the delivery of the team’s findings
and recommendations to Tolstedt’s leadership team in 2012. The project team reported, among
other things, that the rating system for employees used by branch and district managers was
driving inappropriate sales behavior by creating sales pressure and fear among employees about
losing their jobs. Specifically, some branch and district managers inappropriately considered
only sales in determining employees’ overall performance rating. With respect to incentive
compensation, the project team leader orally conveyed the following recommendations: (i) stop
raising sales goals; (ii) do away with teller referral goals; and (iii) consider modifying the
incentive plan. The Community Bank did not drop teller referral goals, and, while it lowered
overall sales goals slightly for 2013, it did not revise the sales goals embedded in the eligibility
thresholds for incentive compensation until 2014 (and then only slightly). Ultimately, the most
substantial contributions of the project team related to the implementation of enhanced training
(such as the “Ethically Speaking” training modules) and proactive monitoring tools (such as the
Quality of Sales Report Card).
In late 2013, after the first Los Angeles Times article, Paterson was part of a working
team assembled to evaluate the causes of the sales practice issues, and potential remedial
measures, including incentive compensation. This team was led by Matthew Raphaelson, who
drove and directed its work, with limited input from outside the Community Bank. Ultimately,
the changes to the incentive compensation plans implemented as a result of this process were

81

 small and incremental. Corporate HR and others were frustrated with Paterson’s lack of
initiative and authority over the project.25
Tracy Kidd succeeded Paterson as head of Community Bank HR upon Paterson’s
retirement in September 2014. She also reported to Carrie Tolstedt, with a dotted line reporting
relationship to Hardison. Kidd believed that the Community Bank was proceeding appropriately
to address the sales practice issues in 2014 to 2016.
C.

Corporate HR/Chief Administrative Officer
Hope Hardison joined Wells Fargo in 1993 and became the Corporate HR Director in

2010. As HR Director, Hardison reported to Patricia Callahan until spring 2014, when she
became a member of the Operating Committee and began to report directly to John Stumpf.
Hardison became Chief Administrative Officer (“CAO”) in September 2015, after Callahan’s
retirement.
Hardison was aware of sales practice issues throughout her tenure as HR Director, but
until the Los Angeles/Orange County investigation in late 2013 she did not understand them to
be pervasive; she generally understood them to involve the “gaming” of the incentive
compensation system. Hardison was a member of the Ethics Committee and the Team Member
Misconduct Executive Committee (“TMMEC”), which received reports from Michael Bacon
(head of Corporate Security, which included Internal Investigations) on various forms of
misconduct by employees, including sales integrity violations. The Ethics Committee reports
generally noted increases in sales integrity violations, which Bacon at times characterized as a

25

While all incentive compensation plans were required to comply with the Wells Fargo’s Incentive Compensation
Risk Management (“ICRM”) policy adopted in 2011, the design and review of the Community Bank’s incentive
compensation plans was the primary responsibility of the Community Bank, with limited involvement by Corporate
HR and Corporate Risk. Nonetheless, Corporate HR was the “owner” of the ICRM program, and the HR Director
was the chair of the Incentive Compensation Steering Committee (composed of members of the ERMC), which
retained authority over all incentive compensation plans.

82

 matter for concern. In 2013, reports to the TMMEC included the number of sales integrity
allegations and cases. From 2012 to September 2014, Bacon was Hardison’s direct report, and in
that capacity provided her with reports relating to sales integrity violations and other types of
team member misconduct, including ad hoc reports on specific cases. In February 2013, Bacon
sent Hardison a report he had provided to the Community Bank, which included a table showing,
with respect to sales integrity violations, the number of allegations, cases worked, employees
cleared, confirmed fraud or policy violations and related terminations and resignations (935 in
2011 and 1,142 in 2012), broken down by case subtype, including, among others, customer
consent, false entries and referrals. Hardison did not recall reviewing this report in detail or
having understood at that time the scope and nature of the sales integrity violations.
Callahan had various roles over her long career at Wells Fargo, including HR director
(1993-1997, 1998-2005), head of operational risk and compliance (2005-2007), head of the
corporate responsibility group (2008), head of the integration efforts with Wachovia (2008-2011)
and CAO (2011-2015). She retired effective September 1, 2015. Callahan had substantial
influence at Wells Fargo, in part because of her work with people in many groups within Wells
Fargo. Stumpf characterized her as a confidante and trusted adviser. Callahan also worked
extensively with the Board, including, at various times, as the primary contact in management
for the HRC and the Corporate Responsibility Committee. She had additional Board-related
responsibilities, including the recruitment and onboarding of new directors.
Callahan had been aware of sales practice issues in the Community Bank going back to
2002, when she was involved in dealing with the misconduct at the branch in Colorado
(described above at pages 73-74). According to Callahan, when she later heard or received
reports concerning gaming in the Community Bank (including reports she received as a TMMEC

83

 member), she generally viewed them in light of that earlier experience, which she recalled as
young employees involved in “gaming” the incentive compensation system, with no customer
impact. Callahan was aware that in any given year Wells Fargo would terminate about 1,000
people for sales practice violations. She did not view this number as a “disaster” in light of the
size of Community Bank’s operations and the fact that the number included improper referrals
and other relatively minor violations.
In late 2013, after the first Los Angeles Times article and during the Los Angeles/Orange
County investigation, Callahan and Hardison urged the involvement of enterprise-level
representatives in the Community Bank’s efforts to address the sales practice problems.
Callahan became involved with efforts at the corporate level (including media relations, which
was within her purview as CAO) and in the Community Bank to address the sales practice
issues, both from a reputational perspective and to address the underlying issue itself. In an
email exchange on November 8-9, 2013, with Tim Sloan (then CFO), Callahan confirmed that
she was working with Tolstedt on the sales practice review. She noted, “We are trying to limit
the damage of further terms [terminations] in the short term hoping the LA Times story doesn’t
become national.” She added that “then the larger sales practice review needs to be done,
although Carrie is already trying to find ways to reduce pressure – goals, referrals, etc.”
Hardison and Callahan were very concerned about the number of people being fired by
the Community Bank. Hardison in particular was concerned that the Community Bank was
blindly firing people and not looking for a root cause of the problem, while Callahan was also
concerned about the reputational risks arising from the firings. As a result of this concern, the
Community Bank “paused” its proactive monitoring for sales integrity violations in late 2013

84

 into early 2014 to try to evaluate the root cause of the sales practice issues. Ultimately, however,
Hardison believed that this effort did not get to the fundamental cause of the problem.
In late 2013, Callahan and Hardison also asked a senior Corporate HR person and a
senior employment lawyer to work with the Community Bank in analyzing the causes of the
sales practice issue and recommending measures to address those causes. Matthew Raphaelson
led this effort, and Hardison was advised by the Corporate HR representative that the
Community Bank was reluctant to provide information and resistant to significant change. The
enterprise-level representatives involved in this effort do not appear to have had a significant
impact on the actions taken by the Community Bank in late 2013 to early 2014.
On April 9, 2014, Hardison attended a meeting of the ERMC where she was advised of
approximately 1,000 terminations for sales integrity violations in the Community Bank in 2013.
Hardison had a strong negative reaction (which she expressed at the meeting) about the number.
Hardison was also vocal in expressing her dissatisfaction with the efforts made by the
Community Bank to understand and fix the problems, noting that it appeared that they had not
really done anything. After the ERMC meeting, Tolstedt called Hardison to chastise her for her
behavior and for “bullying” Tolstedt’s people at the meeting. Hardison spoke to several people
after the meeting to try to push the Community Bank to address sales practices more quickly.
Callahan was involved in the process of reviewing the Community Bank’s efforts and
proposed actions with respect to sales practices in 2014 and early 2015. She met with
Raphaelson about the Community Bank’s proposed actions, and spoke with Tolstedt as well.
Callahan had known Tolstedt for many years and had an informed understanding of Tolstedt’s
strengths and weaknesses as a manager and leader of the Community Bank. In Callahan’s view,
while Tolstedt was capable of managing and organizing the huge enterprise that was the

85

 Community Bank and structuring programs that could get the Community Bank to move in the
direction she wanted it to move, she was also obsessed with control and extremely cautious and
slow in making decisions and implementing changes. In 2014 and early 2015, Callahan’s sense
was that the Community Bank was not doing enough fast enough to address the sales practice
issues, but she did not push the pace of its efforts.
Callahan did not raise sales practice issues with the Board, the HRC or the Corporate
Responsibility Committee. Hardison first raised sales practices in February 2014 to the HRC as
a subject for risk-related monitoring for compensation impacts for management employees in the
Community Bank (as discussed above at pages 67-68).
In late 2014 and early 2015, Corporate HR participated with Corporate Risk in risk
assessments throughout Wells Fargo to determine any recommended adjustments to 2014
compensation for risk issues. In Hardison’s view, these determinations were primarily the
responsibility of Corporate Risk, although she also signed off on them. Although Hardison
believed in early 2014 that the Community Bank was not doing enough with respect to the sales
practice issues, by the end of 2014, the prevailing view at Wells Fargo, with which she agreed,
was that the Community Bank had been putting in a lot of effort and was making progress.
Accordingly, as discussed above at page 69, she and Loughlin recommended that no adjustments
be made to 2014 compensation for sales integrity issues.
In late 2015 and early 2016, Hardison and Loughlin conducted another review of risk
issues to determine compensation adjustments for management employees below the Operating
Committee level. In February 2016, they reported to the HRC that they recommended that such
adjustments be made based on sales integrity issues in the Community Bank. These

86

 compensation adjustments ranged from 1% to 3% of the total incentive compensation for the
affected individuals.
D.

Recent Remedial Changes
The efforts to centralize HR functions, which began in earnest in 2015, have been

accelerated along with the associated authority and responsibility to manage risk and cultural
change throughout the company. Since 2016, the HR leads in the lines of business have reported
directly to Corporate HR. In addition to improving visibility into the lines of business and
enhancing oversight generally, centralizing these reporting lines is intended to strengthen the
independent oversight of the incentive compensation programs within the lines of business, as
well as the management of talent development and leadership training.
In addition to these structural changes, the HR function has taken specific action in
response to the sales practice issues. It organized a program to re-hire former employees who
left Wells Fargo, including because of sales pressure. It is also actively reassessing and
considering new methods for determining and measuring employee engagement and satisfaction,
as the positive “top-line” metrics reported in employee surveys in the past contributed to Wells
Fargo’s failure to understand the scope and nature of the sales practice issues and their impact on
employees.26

26

Based on a limited review completed to date, Shearman & Sterling has not identified a pattern of retaliation
against Community Bank employees who complained about sales pressure or practices. The review, which is
ongoing, thus far has consisted of the following five steps. First, Wells Fargo’s outside counsel provided a
spreadsheet listing 115 potential whistleblower cases identified by Wells Fargo’s HR legal team for the period 201116 (this included many different types of claims, e.g., sexual harassment). From that spreadsheet, ten case files
(including legal documents, employee files, HR records, ICE records and case-related correspondence) from the
period 2011-2013 were identified for review because the spreadsheet description suggested those cases could be
related to sales practice misconduct. The review of those ten files did not reveal any documentary evidence
suggesting purposeful retaliation in those cases. Second, based on a review of these ten case files, media reports, the
Shearman & Sterling document repository and a list provided by Wells Fargo’s legal department of publiclydisclosed whistleblowers, counsel identified 11 former Wells Fargo employees to interview (only three of whom
agreed to speak). Counsel also reviewed documents relevant to those 11 individuals located in Shearman &
Sterling’s document repository. This inquiry did not identify evidence of retaliation. Third, Shearman & Sterling
analyzed whistleblower and EthicsLine reports made to the A&E Committee going back to 2011, and identified nine

87

 Internal Investigations
Internal Investigations is a group within Wells Fargo that investigated allegations of
employee misconduct and made determinations if misconduct was proved. Internal
Investigations also made the determinations about whether to file a suspicious activity report
(“SAR”) in particular cases. It made recommendations concerning terminations, but not the final
decisions. Internal Investigations appears to have operated independently of the lines of
business. Investigators do not appear to have felt pressure to forgo investigating sales integrity
violations or to have believed that their determinations could be overruled by the lines of
business or other control functions within Wells Fargo.
Internal Investigations reported in to Audit until 2012, when a new Chief Auditor was
appointed. From 2012 until September 2014, Internal Investigations reported in to Corporate
HR, and from September 2014 forward it was part of the Corporate Risk organization. Michael
Bacon led Internal Investigations until September 2014, when he left Wells Fargo following an
internal reorganization that eliminated his position as head of Corporate Security.
Internal Investigations first noticed an increase in sales integrity cases in 2002.
Representatives of Internal Investigations participated in the 2002 sales integrity task force led
incident descriptions as potentially implicating sales practice-related retaliation. Two of those incidents related to
employees whose files were reviewed as part of the review described in the first step, above, and review of the other
seven files has not been completed as of the date of this Report. Fourth, Wells Fargo’s outside employment counsel
reviewed files (including ICE records, EthicsLine data, HR data and media reports) relating to 885 employees,
consisting of employees who (i) called Wells Fargo’s EthicsLine between January 1, 2011 and October 5, 2016,
identified themselves on the calls and were subject to a corrective action within 12 months of their call or (ii) during
the month following the September 8, 2016 settlement announcement, claimed in media reports that Wells Fargo
had retaliated against them for reporting sales misconduct or sales practices concerns. Shearman & Sterling is in the
process of independently reviewing the following two sets of files reviewed by Wells Fargo’s outside employment
counsel, in each case as supplemented by a search for relevant documents in its own document repository: (i) eight
files identified by Wells Fargo’s employment counsel as raising “concerns,” and (ii) ten additional files of
employees who were also among the 5,367 terminations referenced in the September 2016 settlements. Fifth,
whistleblowers have been identified in the derivative complaints relating to sales practices filed by Wells Fargo
shareholders. Shearman & Sterling determined that one of those did not involve a sales practice-related matter, and
has reviewed the files related to two other publicly-identified whistleblowers as part of the review described in the
first step above. Counsel is still in the process of reviewing the files relating to an additional four individuals.

88

 by the Community Bank (discussed above at pages 31, 74, 80). In 2004, Internal Investigations
was involved in the work of a sales integrity investigations task force, which also included
representatives of Community Bank HR, Community Bank management and the Law
Department. It addressed and implemented, among other things, additional measures for training
and the screening and investigation of allegations of gaming.
In the course of the work of the task force, a manager in Internal Investigations prepared
a report in August 2004 on “Gaming,” regarding sales integrity violations and what Internal
Investigations had learned about the subject. The report contained information about the scope
of the sales practice issues at that time and observations about its causes and impacts. According
to the report, “it is the conclusion by Corporate Security Internal Investigations” that “whether
real or perceived, team members on the current Corporate Sales Incentive Plan feel they cannot
make sales goals without gaming the system. The incentive to cheat is based on the fear of
losing their jobs for not meeting performance expectations.” The report warned of the
reputational risks for Wells Fargo, specifically, “[i]f customers believe that Wells Fargo team
members are not conducting business in an appropriate and ethical manner, it will result in loss
of business and can lead to diminished reputation in the community.” In that regard, the report
noted that Wells Fargo had been losing unemployment insurance cases involving sales integrity
terminations, in which judges “made disparaging comments” about the sales incentive system.
The report conveyed the experience of two peer banks that had significantly reduced their sales
incentive employee terminations after revising their sales incentive programs, and recommended
that Wells Fargo consider similarly reducing or eliminating sales goals for employees and
removing the threat of employee termination if goals were not met.

89

 This report was sent to, among others, the Chief Auditor, a senior in-house employment
lawyer, Community Bank HR personnel, the head of sales & service development in the
Community Bank and Michael Bacon. It was also discussed at a gaming offsite in October 2004.
There is no evidence that the report and its recommendations were further escalated. In
December 2004, the task force provided a memorandum to Carrie Tolstedt and Patricia Callahan
on the work of the task force, but the content of the August 2004 report was not conveyed in that
memorandum.
In later years, as discussed elsewhere in this Report (see pages 50, 82-83, 95-96), Bacon
provided to members of management written reports that included data on sales integrity cases.
Bacon’s written reports do not appear to have addressed the root causes of the sales integrity
violations or to have made recommendations about how to stem them. Bacon told a colleague
that he had repeatedly raised concerns about sales integrity issues to leadership and felt that the
issues he raised were not being addressed. 27

27

Bacon declined to be interviewed, so his oral reports to persons outside Internal Investigations on sales integrity
violations could not be confirmed.

90

 Audit
A.

Audits of Sales Practice-Related Issues and Incentive Compensation Plans
Between 2011 and 2016, Wells Fargo Audit Services (“Audit”) conducted periodic audits

that touched on sales practice issues within the Community Bank. These audits generally found
that processes and controls designed to detect, investigate and remediate sales practice violations
were effective at mitigating sales practice-related risks. In addition to auditing these detective
functions, Audit also reviewed the Community Bank’s compensation plans and found that their
design did not promote unethical behavior. As a general matter, however, Audit did not attempt
to determine the root causes of unethical sales practices.
In April 2011, Audit reviewed the Regional Bank’s “Sales, Service & Development”
(“SS&D”) group, which is responsible for a variety of controls designed to monitor and mitigate
potential unethical conduct, such as gaming behavior, by regional banking employees. Audit
rated SS&D’s processes “Effective” (giving it 4 out of 5 on Audit’s then-applicable ratings
scale). Audit did identify a “moderate” issue regarding controls to monitor debit card sales
integrity; Audit had learned about potential sales practice issues around debit cards from Internal
Investigations. As a general matter, Audit witnesses indicated that, while Audit would not
regularly seek out issues like this one, it would consider those issues when they arose.
In December 2013, an audit of regional banking’s sales quality/sales integrity function
once again rated the processes for detection of sales integrity violations “Effective.” At that
time, the sales quality/sales integrity function, consisting of sales quality analyst and service
polling analyst teams, researched allegations of inappropriate branch sales practices. In
reviewing the sales quality/sales integrity function, Audit examined risk management, systems of
controls and governance processes to determine whether the function was effectively receiving
and responding to sales integrity allegations. While Audit did not review individual allegations
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 or conduct interviews of bankers to determine the root causes of sales practice issues, Audit
witnesses explained that they were comfortable with their “Effective” rating because sales
integrity violations were identified, investigated and, when violations were confirmed,
responsible employees were terminated. One witness also indicated that Audit was aware at the
time of this December 2013 audit that proactive monitoring had prompted the simulated funding
investigation in Los Angeles, which gave Audit comfort that the monitoring systems could
appropriately detect problematic conduct.28
In lieu of conducting its own branch-level audits, Audit periodically audited the “Store
Operations Control Review” group (“SOCR”), the Community Bank’s internal quality assurance
team. SOCR rated every Wells Fargo branch location on an annual basis after observing team
member behavior, conducting branch-level employee interviews and inspecting key accountrelated documentation, such as customer IDs and signature capture, which were collected in a
centralized image-processing center on account opening. In 2010, Audit rated SOCR “Effective”
(a 4 out of 5). It again rated SOCR “Effective” in 2012 (4 out of 5), but identified a “moderate”
issue encompassing several items, including that ATM cards were not being timely destroyed,
that there were errors in certain wire-related documents and that quality assurance work papers
were not consistently or accurately completed. The audit noted, however, that “none of these
unidentified errors . . . would have impacted the overall SOCR rating.” In 2013, Audit did
validation work around the corrective action plan for these items, found the implementation of
the plan inadequate and re-opened the issue. When Audit reviewed SOCR in 2014, it found that
28

In 2014, Audit reviewed the regional banking in-store customer complaint process with a focus on how written
complaints were tracked and resolved. While Audit identified a concern regarding bankers on occasion failing to
timely refer complaints to the “Resolution Team,” Audit concluded that complaints were handled appropriately once
received by the Resolution Team and issued an “Effective” rating. Also in 2014, Audit reviewed the Risk
Operations and Fraud Prevention Services customer and account servicing process, which, among other things,
investigated and resolved customer disputes regarding debit cards and ATM transactions. While Audit identified a
“moderate” issue regarding the group’s tracking system, Audit rated the group “Effective.”

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 the 2012 items had still not been fully remediated. Audit issued a “Needs Improvement” rating;
thereafter, Audit discontinued its reliance on SOCR’s work and began conducting its own inbranch reviews.
In addition to auditing the above detective and operational processes, Audit also
conducted incentive compensation-related audits at both the enterprise and regional bank levels.
In particular, in addition to looking at processes around the compensation systems, these audits
included testing to ensure that incentive compensation plans were not designed so that they
incentivized employee misconduct. Most relevantly, in 2012, Audit conducted a regional bank
compensation audit that reviewed, among other things, incentive compensation plans applicable
to branch employees and lower level managers above the branch level. This review considered,
among other things, the “mix of drivers” within the incentive plans and the plans’ potential
impact on team member conduct. While Audit concluded that incentive compensation plans
were largely sales driven, it determined that the plans were adequately balanced by customer
service and sales quality-related components.29 Audit reached this conclusion primarily based on
reviewing plan documents; it did not do field-work, such as banker interviews, to determine how
the plans were in fact impacting employees. According to an Audit witness, it was felt to be the
purview of the first and second lines of defense (business and Risk) to evaluate the operation of
incentive compensation plan design in practice.
B.

Audits of “Culture”
In connection with its annual Enterprise Risk Management Assessments (“ERMA”),

Audit rated risk and ethical culture in Wells Fargo at the enterprise level, and, beginning in 2013,
29

Between 2011 and 2015, Audit performed several additional audits that included in their scope Community Bank
compensation plans for branch employees and management. As was true with respect to the 2012 audit, Audit
generally found that the Community Bank’s incentive compensation plan controls were effective, that they aligned
sales and performance objectives with the business’s risk appetite and that they adequately mitigated risks caused by
financial incentives to engage in or overlook questionable sales behavior.

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 at the Community Bank and other lines-of-business level. Audit’s methodology for testing
culture was less systematic than its approach to testing processes and controls: witnesses
explained that culture is a “squishy” concept, difficult to quantify and test using the tools
available to Audit. Audit rated culture in the Community Bank “Strong” in 2013, based on
observations regarding the stature of risk management within the organization, audit results and
various “key initiatives . . . focus[ed] on the customer.” In 2014, the Community Bank ERMA
appears to have focused on risk culture in particular; in support of another “Strong” culture
rating, Audit wrote that risk management had “appropriate stature within Community Banking”
and was “actively involved in strategic planning.” Moreover, Audit found “strong and effective
controls implemented across the business segments which demonstrate[d] the focus on risk
management,” as well as evidence of a strong risk culture through Audit’s “monitoring of risk
council committees and through ongoing participation in business meetings” in addition to “other
committee meetings such as the CB Risk Management Committee, Deposit Loss Management
Leadership Committee, Large Loss Review Team, and Business Direct Risk and Control
meetings.”
The emerging sales practice issues were first reflected in Audit’s 2015 Community Bank
culture assessment, issued in March 2016. Audit rated overall risk management — a component
of the culture analysis — as “Needs Improvement” in recognition of enhancements needed to
become “fully effective relative to heightened regulatory expectations.” One area specifically
identified as needing enhancement was “Sales Practices” — particularly the need to implement
actions to improve related governance and controls in order to address regulatory concerns.
Audit nonetheless rated culture “Satisfactory,” observing that actions were underway to
strengthen sales practices by fostering a culture where “only needs-based and value-add product

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 and service solutions [would be] delivered to customers.” The 2015 culture assessment also
based its “Satisfactory” rating on “observations of Tone at the Top, credible challenge, incentive
compensation, performance management, and stature.”
C.

Additional Audit Awareness of Sales Practice Issues
In addition to its audit work, Audit had access to data from quarterly reporting and

committee presentations that indicated an increasing number of Community Bank sales practice
issues over time. Audit personnel participated in various internal committees in which sales
integrity issues were discussed. Audit witnesses explained that these committees did not
generate action items or determine governance and ethics policies; rather, they were intended to
raise awareness of “macro trends” among senior management. Additionally, Audit personnel
attended semi-annual regional bank leadership meetings, at which data regarding sales integrity
allegations were discussed. Audit witnesses indicated that the information they received at the
meetings helped the business identify emerging risks, but did not appear alarming. Audit also
prepared quarterly reports to the A&E Committee that included high-level summaries of sales
quality and team member fraud data.
Senior Audit personnel, among others, received a July 2012 email from Michael Bacon
(the head of Corporate Security, who also presented at the regional meetings attended by Audit)
referencing “a spike in egregious Sales Integrity matters” and “a concerning trend in the area of
Sales Integrity – from the increase in EthicsLine reports, to the increase in executive complaint
letters” and “increases in confirmed fraud.” Audit did not follow up on this communication,
although one of the email’s Audit recipients said he assumed that Bacon was doing so, in part
because the email stated that “Corporate Security Investigations continues to work on several
Community Bank project teams to analyze root causes and implement additional controls that are
focused on minimizing future occurrences and mitigating the risks associated with” issues
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 around “fictitious sales referrals,” “customer consent concerns” and “false entry of customer
identification information.”30
In general, Audit witnesses said that they had no reason to believe that the Community
Bank’s detection and remediation processes relating to sales practice misconduct were
inadequate. To the contrary, witnesses stated that the information they saw suggested that the
controls in place — which were detective by nature — were functioning as intended. Audit
witnesses also stated that the sales practice misconduct figures they received were not so
pronounced as to suggest an urgent problem requiring modification of audit coverage. They
further stated that their reaction to data suggesting an increase in sales integrity allegations
generally would be to examine whether the monitoring functions responded appropriately, and
Audit believed those functions were effective. Audit witnesses also said that, as the third line of
defense, Audit’s job was to ensure that the control environment established by the first (business)
and second (Risk) lines of defense was appropriate. Audit personnel indicated that their focus
was on testing the operation of specific processes and the processes’ effectiveness at managing
the risks they were designed to control, but that they did not generally investigate root causes of
risks; according to the witnesses, that task rests with the business, which they said has greater
familiarity with the risk environment, better access to operational data and both proximity to and
responsibility for its employees’ actions.

30

The email from Bacon to Audit personnel and others forwarded an email from Claudia Russ Anderson, which
questioned whether Bacon’s draft reporting to the A&E Committee made an increase in Suspicious Activity Reports
“so much worse than it really is . . .” Bacon noted in his email that “Claudia is a fantastic business partner and I
enjoy a great relationship with her, but she often challenges the Audit and CS A&E reporting verbiage. It is often a
classic case of minimizing the negative information being submitted to executive management.” Audit personnel
stated that they found Russ Anderson reasonable to work with, although she generally did not raise issues about
emerging risks but only responded to those raised by Audit.

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 The Board of Directors
This section provides a detailed chronology describing the escalation of sales practice
concerns to Wells Fargo’s Board of Directors and committees of the Board. Board materials
were reviewed back to 2002, where available, with primary focus from January 1, 2009, when
Wells Fargo’s and Wachovia’s merger became effective, through September 25, 2016. That
period encompassed approximately 80 Board meetings, 80 meetings of the A&E Committee, a
similar number of Human Resources Committee meetings, 31 Risk Committee meetings and
three joint A&E and Risk meetings.
Reports to the Board regarding sales practice issues are framed by three time periods:
prior to 2014; 2014 through May 2015; and May 2015 through September 25, 2016.
A.

Prior to 2014
Prior to 2014, sales practice or sales integrity issues were not flagged as noteworthy risks

either to the Board of Directors as a whole or to any Board committee. The principal report on
noteworthy risks provided to the Board of Directors, starting at least with the first quarter of
2010, was prepared by the Enterprise Risk Management Committee, which included the most
senior executives in the Risk, Compliance, Legal and Finance organizations. The ERMC
prepared quarterly written reports to the Board of Directors that identified the Top Enterprise
Risks facing Wells Fargo, typically flagging 20-40 such risks. Prior to 2014, sales practice
issues were not among the identified risks.
For example, the ERMC “Top Enterprise Risks” report to the Board in February 2013,
covering year-end 2012, identified 17 “largest risks” and four “emerging risks.” Sales integrity
issues were not included. Similarly, the ERMC report to the Board of Directors for the following
quarter, in April, 2013, set forth four “consensus largest risks,” one “emerging risk” and an
appendix listing 16 risks falling under the categories of Reputation Risk, Strategic Risk,
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 Financial Risk, Credit Risk, Legal Risk, Market Risk, Other Operational Risks and Other
Emerging Risks. Sales integrity issues were not included as a noteworthy risk. The same held
true for the other ERMC reports throughout 2013.
The Risk Committee31 oversees enterprise-wide risk and the Human Resources
Committee oversees Wells Fargo’s incentive compensation risk management program and
practices for senior executives and employees in a position to expose the company to material
financial or reputational risk. Prior to 2014, the materials submitted to these committees did not
raise sales integrity concerns.
Sales integrity issues were mentioned in materials prepared for the A&E Committee. The
primary responsibility of a public company audit committee is to monitor and oversee the
integrity of the company’s financial statements and financial reporting and to oversee the
external and internal auditors. The A&E Committee reviews a number of risk issues, including
operational risk, legal and regulatory compliance, financial crimes risk, information and security
risk and technology risk.
Materials prepared for the A&E Committee prior to 2014 did not highlight sales practices
as a noteworthy risk. Going back to at least 2002, however, committee materials referenced
sales conduct or “gaming” issues. They arose in two sections of the quarterly A&E Committee
package:
First, the BSA Officer issued a quarterly status report, usually dominated by discussion of
Bank Secrecy Act (“BSA”), Anti Money Laundering (“AML”) and Office of Foreign Assets
Control sanctions compliance activities. It also included sections describing Suspicious Activity
Report (“SAR”) filings for both “External Fraud Investigations” and “Internal Fraud

31

The Risk Committee came into existence in 2011.

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 Investigations.” In all, there were 21 SAR categories as of 2009, all of which involved violation
of law or possible violation of law. Five of the 21 dealt with employee misfeasance or
malfeasance including Bribery/Gratuity, Defalcation/Embezzlement, Misuse of Power or SelfDealing, Mysterious Disappearance and False Statement. “Sales integrity” SARs fell within the
False Statement category. In 2012, the new SAR form was expanded to 75 categories; providing
questionable or false documentation was one available choice. Some reports from the BSA
Officer specifically referred to “sales integrity” SARs; others did not.
Second, Wells Fargo Audit & Security (renamed Wells Fargo Audit Services in 2012,
both “WFAS”) also prepared a quarterly report of 50-150 pages covering multiple topics
including issues most important to the enterprise (such as BSA/AML), emerging issues,
integration activities between Wells Fargo and Wachovia, audit review and tracking, special
audit projects, investigations and annual reporting requirements under federal statutes and
regulations. The WFAS report referred to sales integrity in two contexts. First, Corporate
Security conducted investigations of “team member misconduct involving a possible violation of
law, code of ethics policy violation or information security policy violation.” This could include
embezzlement, loan fraud, falsification of records and sales integrity. Second, EthicsLine reports
and resulting investigations from anonymous reports of “possible violations of the Code of
Ethics, violations of law, and suspicious activity” involving employees could also include sales
practices. The WFAS reports referenced allegations and investigations concerning sales
practices in most, but not all, quarters.
In the A&E Committee’s materials prior to 2014, sales integrity SARs and investigations
were therefore categorized together with other internal matters, such as defalcation,
embezzlement, Code of Ethics violations, falsification of records, business expense fraud and a

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 teller’s forced balancing of his or her drawer, all matters that were viewed as having minimal, if
any, customer impact.
Pre-2014 A&E Committee reports did not identify sales integrity as a noteworthy risk or
as requiring special attention. As an example, beginning in 2013, the A&E Committee material
began with “Highlights of Materials” for the relevant meeting. Sales conduct was never
mentioned. Since 2005, most quarterly books included an Executive Overview section; with two
exceptions, sales conduct did not make it into the Executive Overview. This lack of emphasis is
not surprising because sales practice issues were not understood quantitatively to have a material
impact on Wells Fargo’s financial statements, and violations were committed by sales personnel
in the branches, not employees responsible for internal controls over financial reporting.
B.

2014 Through May 2015
Sales integrity issues received heightened Board reporting and attention in 2014

following publication of a December 21, 2013 Los Angeles Times article about improper salesrelated conduct, principally in Los Angeles. Hernandez, the Risk Committee Chair, instructed
Loughlin that Corporate Risk should be involved in addressing the sales practice issues and that
the Risk Committee should be kept informed of the status and developments. Much of the
oversight now shifted to the Risk Committee, with primary responsibility for enterprise-wide risk
and comprising among its members the chairs of the other Board committees.
Sales practices and the cross-sell strategy were identified as a risk issue to the Risk
Committee for the first time in February 2014.32 The ERMC circulated a report titled
“Noteworthy Risk Issues.” Among 19 risks identified as noteworthy, sales practices was
included as a “High” risk and a risk likely to increase over the next year. In a similar report to
32

“Risks associated with sales practices, [our] cross sell strategy and team member conduct” were also first
identified as a “noteworthy” operational risk to the A&E Committee at its April 2014 meeting.

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 the Board dated January 22, 2014, and delivered to the Board at its February 2014 Board
meeting, the ERMC also identified sales conduct as one of 10 significant risks, supplemented by
an appendix of 11 additional risks. The report stated that management was specifically focused
on “the risks associated with sales practices, our cross sell strategy, and team member conduct.”
In February 2014, the HR Director and the Chief Risk Officer reported to the Human Resources
Committee that, while they recommended monitoring for sales integrity in the Community Bank
in 2014, action plans were in progress to address the issue, including heightened monitoring, and
there was no need to adjust compensation for the 2013 cycle for sales integrity matters.
In an April 17, 2014 email exchange between Loughlin and Tolstedt regarding a draft of
her presentation on sales practices scheduled for the April 2014 Risk Committee meeting,
Loughlin advised that the Risk Committee wanted to hear from Tolstedt whether “the pressure of
cross sell goals cause bad behavior.” Tolstedt’s presentation was removed from the agenda
when she was summoned to jury duty. At the full Board meeting in April, Loughlin reported
that sales practices had now become a current “focus” for Corporate Risk.
Sales practices were raised by the Risk Committee with senior management at the August
4, 2014 Risk Committee meeting. At that meeting, in response to a director’s question on crosssell risk issues, Loughlin and Stumpf discussed Wells Fargo’s focus on ensuring its cross-sell
strategies were consistent with the development of long-term customer relationships.
Overlapping in time, a broader project was underway since early 2013 to strengthen the
Corporate Risk Group overall and oversight by the Risk Committee. In February 2013,
McKinsey, an independent consulting firm, was engaged to evaluate Wells Fargo’s risk
management practices. McKinsey prepared a 402-page report that proposed many changes to the
risk organization, and identified the need to “manage comprehensively the risks associated with

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 sales (including product design, suitability and cross-selling)” without further description of the
actual problems. McKinsey’s report was presented to the Risk Committee, the Board and Wells
Fargo’s regulators in the summer of 2013. In October 2013, Corporate Risk presented to the
Board a three-year plan to implement changes proposed by McKinsey and Wells Fargo’s
regulators. For 2014, the Board supported $60 million of additional funding for Corporate Risk
to take on additional personnel, and the Risk Committee and Loughlin discussed whether
forecasted Corporate Risk staffing levels were sufficient and compared favorably to peer
institutions.
Throughout 2014, the quarterly “Noteworthy Risk Issues” submitted to the Risk
Committee, two of which were also provided to the Board, continued to rank sales practices as a
High and increasing risk, although it was not included in the Executive Summary covering the
most important enterprise risks. The Board and Risk Committee thereafter received assurances
from the Corporate Risk group, the Community Bank and Human Resources that sales practice
issues were the subject of heightened attention, that the control environment was operating
effectively and that the situation was improving.
Because of these improvements, in February 2015, the Noteworthy Risk Issues report
reduced sales conduct from High to Medium risk, stating that management was “build[ing] out
additional second line of defense oversight of Sales Practices.” Also in February 2015, Audit
reported to the A&E Committee that in 2014 it had conducted audits of sales practices, sales
conduct and cross-sell, which were rated effective with no reportable issues. And in February
2015, the Director of Human Resources and the Chief Risk Officer advised the Human
Resources Committee that the Community Bank had taken appropriate actions to address sales

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 integrity issues, and therefore, there was no need to adjust compensation for 2014 for sales
integrity concerns.
In April 2015, Tolstedt presented to the Risk Committee on sales practices. She
acknowledged the need to address sales integrity issues in the Community Bank but reported
favorable changes to address those issues. Tolstedt discussed improvements in risk management
practices by enhancing monitoring capabilities of the Sales and Service Conduct Oversight
Team, strengthening ethics training in the Community Bank, modifying compensation structures
and incentive plans to encourage good behavior, and bolstering controls through a Quality of
Sales Report Card, which was said to provide management with “key indicators around quality
of sales in the areas of customer signatures, activations, procedures and account funding.” She
reported that the percent of branches achieving “Acceptable” ratings using the QSRC system
increased to 93% in the first quarter of 2015 and that all Regional Banking Executives
“performed well above Acceptable levels.” She also reported that EthicsLine sales quality
allegations decreased by 10% in 2014. Tolstedt emphasized that a large organization could not
be perfect, and that the sales practice problem was a result of improper action on the part of
individual employees.
The Risk Committee members viewed Tolstedt’s presentation as too superficial and
optimistic. After the meeting, Committee Chair Hernandez called Loughlin to tell him that the
presentation was unsatisfactory and that Tolstedt should be brought back to the Risk Committee
again to address sales practices.
C.

May 2015 Through September 2016
On May 4, 2015, the Los Angeles City Attorney filed a lawsuit challenging Wells Fargo

sales practices in Los Angeles. On May 7, the Risk Committee Chair, troubled by the allegations
in the complaint, instructed Loughlin to coordinate a presentation “for the Risk Committee
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 concerning the issues alleged and the WF policies, frameworks and activities that relate to them.”
The May 2015 “Noteworthy Risk Issues” restored sales practices to High risk and stated: “[w]e
added sales practices to the enterprise priorities as this is an area receiving significant regulatory
attention and poses a reputational risk due to a recent lawsuit filed alleging inappropriate sales
practices.”
In a May 12, 2015 email, Stumpf reported to the senior members of the Law Department,
Corporate Risk and the Community Bank, that he and the Chair of the Risk Committee “decided
to review the ‘L.A. issue’ as the first order of business for the Risk Committee next week.”
Stumpf instructed Tolstedt to work with the legal team to get relevant information to the
committee members before the meeting.
In discussions with Stumpf, Hernandez had stated that the May presentation should not
only discuss the Los Angeles case but also provide the broader context of sales practices and
resulting actions. After reviewing a draft presentation to the Risk Committee prepared by the
Community Bank, Stumpf instructed the drafting team that the presentation should include
additional information: “My guess [is that] the [Risk] Committee of the board will want more
supporting information,” including specific information about the number of employees
terminated for sales practice violations in the last twelve months and since Wells Fargo began
implementing changes, the percentage of employees terminated for sales practice violations,
whether and how Wells Fargo made sure it remedied customer harm, and the number of
inappropriate accounts opened, as well as remedial steps.
A revised draft was prepared containing some of the requested information: it disclosed
that approximately 1% of employees in the regional bank had been terminated for sales integrity
violations in 2013 and 2014. A lawyer questioned the basis for that 1% number, and the topic

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 became a subject of a prescheduled call among representatives of the Community Bank and the
legal team. During that call, the 1% figure was deleted from the report to the Board. Every
participant on the call that was interviewed has stated that he or she does not remember that
discussion or the reason for the deletion. A review of emails shows that the most likely
explanation is that Russ Anderson, backed by Tolstedt on the telephone call, argued that the 1%
figure was unreliable, notwithstanding that the head of Internal Investigations had defended the
data and reported that there had been 1,229 sales practice terminations/resignations in the
Community Bank in 2013 and 1,293 in 2014. Russ Anderson continued even after the call to
question the validity of the figure.
At the May 19, 2015 meeting, the Risk Committee met with management and company
counsel and heard their presentation. After Strother made an opening presentation, Tolstedt
spoke. The message communicated to the Risk Committee was that: (i) as a result of an
investigation commenced in Southern California and thereafter expanded across “the retail
banking footprint” in 2013 and 2014, 230 employees had been terminated; (ii) 70% of the
terminations were related to telephone number changes (principally to frustrate telephone quality
control surveys) and 30% to simulated funding abuses; (iii) the root cause was intentional
employee misconduct, not systemic issues arising from sales goals or compensation; and
(iv) Wells Fargo’s controls had been effective in detecting improper behavior.
The Risk Committee was highly critical of the presentation. The 230 number from the
2013-2014 investigation was the first time the directors had heard of large-scale terminations
and, as noted in a contemporaneous email from a participant in the meeting, the committee felt
blindsided by the disclosure. In addition, in identifying possible violators, the Community Bank
had used as a threshold or filter the commission of 50 phone number change violations over a

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 three-month time period. As several witnesses recalled, Hernandez vigorously questioned that
approach. Witnesses also recalled that the Risk Committee was critical of the Community Bank
for taking too long to conduct a customer harm analysis.
The actual aggregate termination numbers for 2013 and 2014 of 1,229 and 1,293,
respectively, as determined by Internal Investigations, went unmentioned at the May 19 meeting.
Even if the Community Bank genuinely believed that the actual termination figures were
unnecessary or had shortcomings, the Risk Committee had asked for that exact information,
which was readily available, and its deletion created an inaccurate picture as to the scope and
extent of sales practice problems. Multiple Board members have stated that they felt misled by
the presentation; they left with the understanding that sales integrity terminations were in the
range of 200-300 and were largely localized in Southern California. The Board was not provided
with the correct aggregated termination data until well into 2016.
After the meeting, Stumpf called Loughlin, who was on vacation, and told him that the
meeting (which Stumpf had not attended) did not go well, and the presentation was not well
done.
Following the Risk Committee’s harsh reaction to the May presentation, management
reported that it was ramping up attention to the issue. At the full Board of Directors meeting in
June, Loughlin reported that Corporate Risk was now planning a comprehensive review and
initiative regarding the company’s sales practices, to cover Community Bank, Mortgage Banking
and Wealth Brokerage and Retirement. He planned also to retain a third-party consulting firm to
conduct an independent review of Wells Fargo’s training, compensation and sales practices.
Management committed to report to the full Board at its scheduled October 2015 meeting. On a
risk awareness “Dashboard” submitted to the Board in June 2015, sales practices, including

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 lawsuits and heightened regulatory compliance activity, were elevated to cross-functional and
reputational risks.
The October 27, 2015 Board of Directors meeting was largely dedicated to a review of
sales practices. The full Board received a report from Accenture, the consultant engaged by
Wells Fargo to review sales practices in the Community Bank; a presentation from Tolstedt on
steps being taken to effectuate the reforms called for by Accenture; and a report from Loughlin
on how Risk was bolstering oversight of sales practices. The Board also had discussions with
management on the retention of PwC to conduct an analysis of customer harm, with a
completion date of January 31, 2016. As witnesses recalled, Hernandez again was highly critical
of the presentation by Tolstedt; he believed she was minimizing the issue before the Board.
Management reported to the Board regarding its intensified efforts. At the November 17,
2015 A&E Committee meeting, the BSA Officer reported that Internal Investigations was now
“working with the new Corporate Risk-led Sales Practices Initiative.” He reported that sales
integrity now made up roughly 25% of internal investigation cases, and that confirmed fraud or
confirmed policy violations were being found in 75% of those investigations. At the same
meeting, the Chief Compliance Officer reported to both the A&E and Risk Committees on
discussions with regulators and compliance activities on remediation of sales practices. Sales
practices remained ranked as a High risk and as an “Enterprise Priority.”
In December 2015, Hernandez and the lead independent director, Stephen Sanger, met
with Stumpf in Washington, D.C., over dinner. They expressed to Stumpf their view that
Tolstedt could no longer effectively lead the Community Bank.
Meanwhile, with the support of the Risk Committee, the risk organization was growing
rapidly. At the February 2016 Risk Committee meeting, Loughlin reported that risk

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 professionals had grown by 16% in 2015, with over 10,000 professionals now monitoring risk.
A new Head of Sales Practice Oversight for Risk was added in November 2015, and a new head
for Community Banking Sales and Service Conduct Risk was hired the previous month. For
2016, the Corporate Risk budget was set to increase another 15.9%, with additional professionals
to be hired in many areas including oversight of sales practices.
Throughout 2016, management kept the Board informed of ongoing discussions with the
Los Angeles City Attorney and with Wells Fargo’s banking regulators to resolve the litigation
and to respond to regulatory concerns and implement corrective actions for sales practices. PwC
summarized its findings on customer harm for the directors. Also, the Risk Committee
continued to authorize Corporate Risk’s rapid expansion.
On February 23, 2016, the Board’s Human Resources Committee met to determine
compensation for 2015 for senior executives, including Tolstedt. By now, the reaction of Board
members to Tolstedt was a complicated one. The Board, especially the Risk Committee, was
concerned and critical of the sales practice issues, but, at this point, Board members still
understood it to be mostly a Southern California problem with terminations in the range of 230.
Hernandez was especially critical of Tolstedt, whom he believed was intentionally misleading
the Board. Most other directors, while believing that she had been overly optimistic and
minimized problems, were not yet that critical. Many thought, however, that because of her
defensiveness, controlling management style, resistance to change and reluctance to cooperate or
work with individuals outside the Community Bank, she was the wrong person to continue to
lead the Community Bank. By now she was reporting directly to Sloan, who had requested six
months to assess her performance and her ability to change and improve, a request viewed as
reasonable by most Board members. And Stumpf still was supportive of her. He strongly

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 advocated before the HRC that all the senior executives on his team, including Tolstedt, should
be treated similarly in compensation. After several directors on the HRC challenged Stumpf, he
persisted and the HRC accepted his recommendation.
Throughout the spring and summer, management advised the Board of ongoing
settlement discussions with the Los Angeles City Attorney, the CFPB and the OCC. In early
May 2016, after A&E directors had asked for more robust involvement by the ethics office, the
A&E Committee received a written report from the Chief Global Ethics Officer. That report
included information about sales integrity violations, including, for the first time, accurate
termination/resignation numbers for 2014 and 2015: 1,327 in the Community Bank for 2014,
declining by 30% to 960 in 2015. The A&E Committee was shown termination data at its July
meeting for the first five months of 2016.
With Sloan’s assessment of Tolstedt completed, effective July 31, 2016, a Board
resolution provided that she would cease serving as an executive officer of Wells Fargo. At that
time, it was announced that she would retire as of December 31, 2016.
Settlements with the Los Angeles City Attorney, the OCC and the CFPB followed on
September 8, 2016. From the CFPB settlement, the directors for the first time learned that
approximately 5,300 Wells Fargo employees had been terminated between January 1, 2011, and
March 7, 2016, for sales practice violations. Board members advocated the discontinuance of all
retail product sales goals, which management announced on September 13, 2016, effective
January 1, 2017. Subsequently, at the Board’s urging, the effective date for discontinuing sales
goals was moved up to October 1, 2016.
On approximately September 21, 2016, the independent members of the Board of
Directors retained Shearman & Sterling to advise them as independent (and previously

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 uninvolved) counsel. The Independent Directors met on September 25, 2016. They took the
compensation actions with respect to John Stumpf and Carrie Tolstedt summarized in Wells
Fargo’s September 28, 2016 Form 8-K. Stumpf agreed to forfeit all unvested equity awards,
valued approximately at $41 million, and receive no 2016 bonus. The Board caused to be
forfeited all of Tolstedt’s unvested equity awards, approximately $19 million, and provided that
she would receive no 2016 bonus and no severance.33 The directors that same day created the
independent Sales Practice Oversight Committee with full authority to conduct a comprehensive
investigation of sales practices. Instead of waiting for the completion of the investigation, Board
committees made governance changes to their charters, as summarized at pages 17-18,
expanding their monitoring and scope of review over conduct risk, including sales practices.

33

At its September 25, 2016 meeting, the Board also determined that Tolstedt would be immediately separated from
Wells Fargo and that cause existed to terminate her employment. The Board directed that a notice of termination for
cause be delivered to Tolstedt on September 26, 2016, but that the notice would be rescinded if she agreed in writing
by September 27, 2016, not to exercise any of her outstanding options until the conclusion of the Board’s
investigation. On September 27, 2016, Tolstedt agreed not to exercise any outstanding stock options previously
awarded until the completion of the investigation and that at such time the Board of Directors would have the
authority to determine the extent to which the options would be forfeited.

110