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Thursday, September 29, 2016

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Chanson de Roland

I sympathize with the our blood thirsty Editor's sense of outrage. However, even Mr. Stumpf and Ms. Tolstedt are entitled to due process, which at a minimum requires a fair and thorough procedure for adducing all of the relevant facts and a fair opportunity for them to defend themselves. Notwithstanding that, Wells Fargo has already fired Ms. Tolstedt, and Mr. Stumpf is unlikely to survive this scandal.

But what most interest me, as a lawyer, is whether facts, either direct or circumstantial, exist that show senior managers at Wells Fargo established a performance and incentive scheme for selling products at Wells Fargo's Community Baking division, where they knew or should have known that defrauding Wells Fargo's customers was a reasonably foreseeable outcome? If the answer to that question is yes, then the civil and criminal legal implications for Wells Fargo are dire, and would include, inter alia, charging Wells Fargo as a criminal enterprise under California and the United States RICO (Racketeering Influence And Corrupt Organizations Act) statutes.

Indeed the too hasty settlements between California and U.S. investigators and regulators and Wells Fargo may have had the effect and perhaps were even designed to shield Wells Fargo from the full rigor of the civil and criminal law's most severe sanctions. Neither California or the United States should have settled with Wells Fargo until a complete investigation had been conducted to determine the full extent of Well Fargo's liability under criminal law and regulations. Certainly, there hasn’t been enough time for anyone to conduct such an investigation. So by proceeding so quickly to settlement, California and the U.S. may have, I hope, unwittingly shielded Wells Fargo from full rigor of justice. If so, then California and the U.S. should return the $185 million to Wells Fargo, which is actually a tiny fine compared to Well Fargo’s assets and the harm done, proceed to conduct a thorough and exhaustive investigation of Wells Fargo's frauds, and then seek the appropriate penalties, including using RICO, not to shutdown and windup Wells Fargo, which would be an absurd and excessively harmful thing to do, but to invest a federal court judge with its full equitable powers of his office as a chancellor in equity to reform Wells Fargo's management, including its Board of Directors, and its culture.

That is what's justice requires and what the law warrants. While this may not be as blood thirsty as the Editor's justified outrage, in a choice, Wells Fargo would take the lesser effects of Editor's vengeance instead of the great rigor of the law's justice, as I've described it, supra. Yet justice, being justice, is the better and more appropriate thing.

George

Due process? I've worked in several Fortune 500 companies and a couple banks. When 5,000+ employees are fired for similar offenses during five years, somebody in the human resources department is paid and responsible for noticing -- unless they are incompetent (too). If not, then how many fired employees does it take before executives notice a troubling employment trend? 8,000? 10,000? 20,000? Assuming competence, red flags must have been raised by HR staff to senior managers -- and seem to have been ignored. If not, then senior HR executives probably need to be fired, too.

I've worked in companies with sales forces that had similar incentive programs. Heck, I've also worked as a sales person. There are always employees trying to game any sales incentive system. Smart, competent managers expect this, plan accordingly, and take appropriate, timely action. To not do so is foolish.

Due process? The bank's senior executives have had five years to notice, manage, and correct things. That they failed to do speaks volumes.

George
Editor
http://ivebeenmugged.typepad.com

Chanson de Roland

Due process is fancy lawyer's talk, which means that all parties before the finder of fact and the presiding officer receive a substantial fundamental fairness in the procedures of the proceeding and the substantive rules of decision so that unfairness does not materially affect the outcome of the proceedings. As a matter of law, the U.S. Constitution only requires that the proceedings of the federal and state governments be fundamentally fair in their courts and their other tribunals in matters that determine and/or affect the rights and/or legally protected interest of the parties. However, state constitutions or state or federal law or contract may also require a fair proceeding by an employer in employment matters; if such law or agreement does not require such due process by the employer the employer, generally speaking, needn't provide any due process, and that is especially true in states, which is most of them, that permit employment-at-will.

But due process, however it arises, is a personal right, so that others having been denied it, does not diminish or in any way impair the right of a person to due process. So, if Wells Fargo denied due process to five or six thousand other employees, Mr. Stumpf and Ms. Tolstedt would still be entitled to whatever due process law or contract provides to them, notwithstanding any denial of due process to others, if there was such a denial of due process. However, my experience with HR departments and firms' disciplinary proceeding does allow that ordinary employees, those without executive employment agreements, rarely receive due process where an employer is determined to be rid of them for a motive that is ulterior to their performance at work.

Aside, however, from whatever right a particular employee has to due process, due process also benefits us all in at least two ways. First, it benefits us because injustice anywhere is a threat to justice everywhere. Martin Luther King, Jr. But due process also benefits us all by revealing the facts of a matter, as, in the employment context, the employee gets to have his have his say, adducing his evidence, for the record. And, in the matter of Wells Fargo's massive defrauding of its customers, we need as much of the relevant, non-cumulative facts as we can get. So the record developed on due process is how we all get to see whether justice was done. Which is why that I am fairly certain that, in this matter, even if it is available to them, neither Mr. Stumpf and Ms. Tolstedt will avail themselves of any due process in proceedings before Wells Fargo. If either Mr. Stumpf and Ms. Tolstedt resort to due process, it will be before a court of competent jurisdiction and not in front of Wells Fargo, where any record that they produce would be available to the prosecutor.

As for those unfortunate thousand, who may have been fired for not being willing to defraud Wells Fargo's customers in order to meet Wells Fargo's standard of performance, they are now having their day in court, which I can assure you, based on my experience with employers, will provide them with far more due process and, I believe, at least constitutionally mandated due process than anything that they could expect from any employer's HR disciplinary proceedings, especially Wells Fargo's proceedings.

Finally, the Editor raises an excellent point: That such large numbers of discharges for the same problem of not meeting sales quotas should have alerted senior management to something being very wrong in its Community Banking Division. And it probably did. That senior management ignored those large number of discharges on the similar facts for the same reason, failure to meet sales quotas, is more circumstantial evidence that the senior managers knew that their scheme of compensation was incentivizing the defrauding of Wells Fargo's customers and that Wells Fargo had become a corrupt criminal enterprise.

Chanson de Roland, Esq.

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