In the little town of Pierz, in central Minnesota, if you find the hidden medallion during their Octoberfest, you can win $500 worth of Pierz Bucks. It’s not real money, but you get bragging rights and a chance to spend them in local establishments.
The most successful person to come from Pierz is John Stumpf, who was pushed out as CEO of Wells Fargo this week because his employees arm-twisted customers into accepting “products” they didn’t want and, when that failed, simply created accounts and credit cards for millions of people without their knowledge.
The fake accounts turned out to be worth less than Pierz Bucks. But they gave Stumpf, who, fittingly, started at the local bakery making bread, bragging rights of his own and an illusion of greater success than he was due.
This week capped an epic fall for Stumpf, a St. Cloud State and University of Minnesota graduate and once the highest paid banker in America. Just last January, Stumpf was named Morningstar’s CEO of the Year. By September, he was being shredded by Sen. Elizabeth Warren at a congressional hearing for fostering a culture that encouraged bank employees to push services onto people who didn’t need or want them.
One person who was not surprised by the scandal is Mike Ciresi. The Minneapolis attorney represented several local nonprofits that sued Wells Fargo in 2009, accusing the bank of defrauding them by placing tens of millions of dollars into risky, complex investments. Wells Fargo, with deep roots in Minnesota, dished out $57 million in the lawsuit.
Describing how the bank CEO answered questions in his deposition for the lawsuit, Ciresi said: “[Stumpf’s] idea of preparing was to play stupid. If he would acknowledge anything, he would be in the soup. He did the same thing before Congress. It seemed to be a pattern.”
Ciresi said he hoped back then that the lawsuit would provide a painful lesson for the bank and Stumpf. But “at the same time of our settlement, he was getting information that these accounts were being created. It’s just absolutely stunningly incompetent.”
Ciresi said Stumpf’s actions are an affront to the more than 200,000 employees “who toil in the bank’s vineyards and are doing a good job.”
In that prescient lawsuit, Stumpf and his predecessor claimed ignorance of the securities lending program that their own bank had offered the nonprofits. In fact, Stumpf said he learned what the investment device was by reading up on it on Wikipedia.
At the time, Ramsey County District Judge M. Michael Monahan blasted the bank for “years of management complacency, if not hubris.” Monahan found the executives’ excuses “to be almost childlike” and snapped that “one of the primary functions of subordinates in today’s corporate America is to shield their ultimate superiors from accumulating embarrassing information.”
Monahan’s foresight was uncanny. Several years later, as the fraudulent accounts were discovered, more than 5,000 subordinates were fired for their actions while Stumpf collected tens of millions of dollars in compensation.
A trip back through the archives shows more glimpses of the bank leaders’ thinking at the time. In 1997, Stumpf was asked by a Star Tribune reporter if acquisitions would be central to growth. No, he replied: “Probably the cheapest way for us to grow now is to sell more product to our existing customers.”
At the time, Wells Fargo was by far the best in its industry at selling multiple products to each customer. Now we know why.
Employees got the message from the top: Either you pushed (or fabricated) more product, or you lost your job. And if you complained to the ethics hot line, as many were instructed to do, you got fired.
“If you asked me whether I would want great products, great distribution or great people, I will always choose people,” Stumpf told this newspaper in 2007. Many of those great people, now called whistleblowers, are suing the bank over wrongful termination.
“Wells Fargo knew that their unreasonable quotas were driving these unethical behaviors that were used to fraudulently increase their stock price and benefit the CEO at the expense of the low-level employees,” the ex-workers’ lawsuit claims. “Although this policy was known to top executives of defendants, plaintiffs … were blamed for harm to clients and retaliated against.”
In an earlier statement, Wells Fargo said it would vigorously defend against the suit.
Stumpf was himself probably under tremendous pressure, because he was following Dick Kovacevich, a legendary banker in the deregulation era, as CEO. As one analyst put it at the time, “John Stumpf has some very big shoes to fill. It’s a lot easier to follow a weak leader than to follow a strong leader. Stumpf can only screw it up.”
In a rare case of the top guy getting hurt in a corporate scandal, the Wells Fargo board clawed back $42 million from Stumpf. Of course he still made more than $19 million, and as the folks in his hometown would tell you, that’s a lot of Pierz Bucks.
Follow Jon on Twitter: @jontevlin