Carrie L. Tolstedt, the former head of retail banking at Wells Fargo, could be sentenced to a year in prison for obstructing an investigation into the bank’s notorious fake accounts scandal. Prosecutors in Los Angeles argued that Tolstedt’s actions were an attempt to conceal one of the most significant banking scandals in modern history. The case, officially known as US v. Tolstedt, 23-cr-115, US District Court, Central District of California, is pending in the US District Court for the Central District of California.
The gravity of the scandal and Tolstedt’s role
Between 2002 and 2016, Wells Fargo employees opened approximately two million unauthorized deposit and credit card accounts to inflate key performance metrics. The scandal cost Wells Fargo $3 billion in penalties and tarnished its once-sterling reputation. Tolstedt, who held key positions in Wells Fargo’s community bank business and the regional bank division during the period in question, was the only executive criminally charged in relation to the scandal. She agreed to plead guilty to obstructing a bank examination earlier this year.
Prosecutors emphasized that Tolstedt hindered the Office of the Comptroller of the Currency’s examination by failing to disclose crucial statistics and information. She did not reveal the number of employees terminated or under investigation for sales misconduct and failed to disclose that the bank had only proactively investigated a minuscule percentage of such employees. Tolstedt had already agreed to a banking industry ban and a $17 million civil penalty as part of her plea deal, which also exposed her to a potential 16-month prison sentence.
While the United States Probation Office recommended a three-year probation term for Tolstedt, federal prosecutors argued that such a lenient sentence would not reflect the gravity of her actions. They insisted that corporate wrongdoers must face severe consequences to deter future misconduct. Tolstedt’s legal team has yet to respond to the prosecutors’ recommendation, but they will have an opportunity to present their case before her sentencing hearing on September 15.
In a separate but related matter, Tolstedt agreed to pay a $3 million penalty to settle a Securities and Exchange Commission civil case earlier this year. The SEC accused her of misleading investors about Wells Fargo’s dubious sales practices, which inflated key performance metrics.
Since the scandal erupted, Wells Fargo has undergone significant changes, including reforming its compensation practices and replacing its chief executive twice. The latest CEO, Charlie Scharf, has indicated plans for substantial changes to regain the trust of regulators and the public.
