Former financial regulator Bill Black explains why criminal prosecutions of executives time after time are not happening
KIM BROWN, TRNN REPORTER: Thanks for watching The Real News Network. I’m Kim Brown in Baltimore. On Tuesday in Washington at a hearing of the Senate Banking Committee, the CEO of Wells Fargo bank, John Stumpf, offered up apologies after federal regulators announced earlier this month that the bank had opened millions of credit and banking accounts without the knowledge or consent of its customers.
JOHN STRUMPF, CHAIRMAN AND CEO, WELLS FARGO: Wrongful sales practice behavior in a retail banking business goes against everything regarding our core principles, our ethics, and our culture. It runs counter to our vision of helping our customers succeed financially, and it is not representative of Wells Fargo as an institution.
BROWN: Thousands of Wells Fargo employees lost their jobs, but no one in senior management did. When CEOs are called before Congress for reprimand behind illegal or unethical business practices, what does that really mean? Does it help people who have been directly impacted by these deceptive acts? Well, joining us today from Kansas City, Missouri, is Bill Black. Bill is an associate professor of economics and law at the University of Missouri-Kansas City. He’s also a white-caller criminologist and former financial regulator, and the author of The Best Way to Rob a Bank Is to Own One. And he’s a regular contributor here on The Real News. Bill, thank you so much for speaking with us. BILL BLACK: Thank you. BROWN: Bill, John Stumpf received the sternest of talking-tos from members of the Senate Banking Committee today. Let’s hear from Senators Sherrod Brown and Elizabeth Warren.
SHERROD BROWN, U.S. SENATOR: This is not a matter of customers who received products and services they did not want or need, as Wells Fargo puts it. That makes it sound like there was a mixup under the Christmas tree and I got the right-handed baseball glove that was meant for my brother Charlie. This is 5,300 employees–Wells Fargo calls them team members–5,300 team members forging signatures, stealing identities, Social Security numbers, and customers’ hard-earned cash so as to hang on to their low-paying jobs and make money for the high-paid executives at Wells Fargo. And they did it for at least–.
ELIZABETH WARREN, U.S. SENATOR: So you haven’t resigned. You haven’t returned a single single nickel of your personal earnings. You haven’t fired a single senior executive. Instead, evidently your definition of accountable is to push the blame to your low-level employees who don’t have the money for a fancy PR firm to defend themselves. It’s gutless leadership. But you squeezed your employees to the breaking point so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket. And when it all blew up, you kept your job, you kept your multimillion dollar bonuses, and you went on television to blame thousands of $12 an hour employees who were just trying to meet cross sell quotas that made you rich. This is about accountability. You should resign. You should give back the money that you took while this scam was going on. And you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission.
BROWN: Now, those who believe that the banking industry needs more regulation, Bill, likely cheered these comments from this duo of Democratic senators. But he, John Stumpf, received rebuke from members on both sides of the aisle–I need to definitely make sure to point that out. But what is likely to happen to CEO John Stumpf behind this? Anything? BLACK: I think that he does have an excellent chance of being forced out. But, of course, if he’s forced out, under the current circumstances he would get a golden parachute, as with the person he pushed out from the senior ranks who ran the retail branches. And she got over $112 million to leave. So, you see, this is a different world they live in, where they want people who do unethical things for a living and they reward them richly. And even if it becomes politically untenable to keep them in the position eventually, after they get all these hundreds of millions of dollars, they give them Christmas in September–or, in this case, July. And it is the opposite of accountability. BROWN: So The Wall Street Journal reported last year that Stumpf’s CEO pay package in 2014 included–wait for it–$2.8 million in base pay, bonuses totaling 12 and a half million dollars, this based on performance. I guess we can perhaps infer that some of the unethical practices by the lower-level Wells Fargo employees contributed to this 12 and a half million dollar performance-based bonus. And plus he got $4 million in cash. Senator Warren last week, or earlier in September, sent a letter to the Department of Justice asking why the Obama administration has not filed formal charges against CEOs and employees of banks who participated in the mortgage and financial crisis of 2007 and 2008. And Wells Fargo was included in that–obviously not just them, but they were part of it. In your opinion, why do you think the Obama administration has failed to go after, prosecutorially, those who have put many Americans–and in some cases the entire American economy–in peril? BLACK: Well, there are two major reasons, and they overlap. The obvious one is political contributions. President Obama is president of the United States because of this immense amount of political contributions he received, overwhelmingly from Wall Street, in the critical months in his first nomination battle with Hillary Clinton. So we’re talking over eight years ago. And that was an amazing thing, because the Clintons have been very good to big finance for decades, have incredibly close connections with them. But this obscure one-term senator was able to out-fundraise Hillary Clinton by a considerable margin among banking. And then, in the general election, he was able to out-fundraise Republicans on Wall Street. So there was one heck of an elevator speech by somebody that said, hey, this guy is our kind of guy, he’s not going to rock the boat. But second thing is that criminal referrals ended. And people who don’t understand this process think, well, that just can’t be terribly important. It actually is critically important. We have roughly a million law enforcement-type officers, but only 2,000 of them do elite white-collar crime investigations, FBI white-collar. And that means that there’s right around two FBI agents not per corporation, but per industry in the United States. So (a) you can see it’s not remotely enough people. (b) It means that FBI agents in the white-collar section cannot possibly have expertise in the particular industry where the fraud is occurring. On average, two FBI agents might be expert in any particular industry. And third, of course, if they can’t walk a beat, they’d never find anything. When you add this to the fact that corporations of course don’t make criminal referrals against their own CEOs, and that’s where these frauds originate. So you can only get a criminal prosecution and you can only get the facts and understand the fraud scheme if there’s either a criminal referral from the regulatory agency or if whistleblowers identify these kinds of fraud schemes. Well, back in the day, in the savings and loan debacle, our agency alone made over 30,000 criminal referrals in a vastly smaller crisis. Flash forward to the current crisis: the same agency made zero referrals. The Office of the Comptroller of the Currency, which is supposed to regulate Wells, made zero criminal referrals. The Fed made, as far as we know, zero criminal referrals, three referrals about discrimination. The FDIC is smart enough to refuse to answer this question. And two critical pieces of evidence came out again about whistleblowers in the testimony today. We learned from the Consumer Financial Protection Bureau head that they began their investigation, he claimed, not because of the earlier investigation and press disclosures–in 2013, mind you, in the L.A. Times–not exactly secret–but because whistleblowers came to the CFPB and told them. And similarly, there was a letter or memo. The facts of it read–to the CEO and chairman; he’s both (Stumpf [IPA: /stʊmf/] is, by the way, the name)–and saying, hey–this is a memo in 2011 alerting him personally to this cross selling abuses. And then he claimed that he didn’t even know there was a problem with cross selling until 2013. And then the senator noted, of course, the fact that the employee who gave the warning was fired. And so we have case after case where whistleblowers–. I’m cofounder of Bank Whistleblowers United, and this network has put on Richard Bowen. And there’s testimony from Michael Winston that gave the Justice Department, on a platinum platter, criminal cases against the top bosses running Citigroup and running Countrywide (now Bank of America). The Justice Department has refused to prosecute. And then a brief word on this good money stuff of Stumpf. Now, stumpf, to do the German, stumpf means, in German, a number of different things, but primary meanings include dull and obtuse, and he has certainly proved the most obtuse of witnesses. He claims that these employees making $30,000-$35,000 a year, in many cases, were making good money. And a senator confronted and asked, well, wait a minute, what did you make last year? And he said $19.3 million. And the senator deadpanned, Now, that’s good money. But let me tell you, if you have $40,000 in the United States, two-thirds of the families where the head of household makes $40,000 a year cannot pay a bill of $400–an unexpected emergency, for example–without selling things. They don’t have enough savings even to deal with a $400 contingency. So when these people were threatened–and they were overwhelmingly viciously threatened–with getting fired–and not just occasionally: four times a day they were called in on whether they had met their quotas and constantly threatened with the reality of being fired if they didn’t meet these impossible-to-meet quotas, right? In those circumstances, it was absolutely certain that massive fraud would occur. But note that there’s also something that’s being ignored. In addition to the 2 million frauds–and think of that number, 2 million frauds by Wells Fargo–in addition to that, you had tens of millions of dollars of sales because these employees are being extorted to sell, sell, sell cross sell products that are absolutely harmful to the customer. Now, those tens of millions of sales were in fact authorized by the customer, but that doesn’t make it OK. That makes it outrageous. And that far larger scandal is being ignored. A similar scandal in the United Kingdom, by the way, has led to over $40 billion in orders to repay, to give you an idea of scope, and the United Kingdom has a much smaller economy than United States’. So we’re ignoring the far bigger hit. And Wells Fargo’s senior executives, who got rich off of these practices, are blaming entirely the low-level victims who could not afford not only to be unemployed; they can’t afford to be fired. Think of what that means in your ability to get your next job. If you worked for a bank and you were fired for cause, right, that makes it next to impossible to get back in the industry. And most of these tellers and such will have student debt. And that combination means that the ability of senior management to extort these people was almost total. And it is reprehensible as a moral matter that they would then turn around and throw the employees under the bus and give themselves $100 million bonus packages. BROWN: So, Bill, obviously we are in the throes of an election season. And in your opinion, are either candidates from the Democrat or Republican sides–or let’s even toss in Gary Johnson and Jill Stein in this mix as well–I mean, who has the political will to go after these companies with criminal charges? Because at present there seems to be a laissez-faire, a hands-off approach. You know, the government will issue the fines, the bank will pay the fines, and some people may have to be forced out or step down or resign. Usually no one gets fired. They get to leave, as you mentioned, with golden parachute packages. But are we ever going to see the prosecution criminally of CEOs and upper-level management people in banks or financial institutions when they outright commit fraud and steal from their customers? BLACK: So Bank Whistleblowers United has a comprehensive, very practical program of the steps you need to take to restore the rule of law, and it’s the steps we took in the savings and loan debacle to actually get 1,000-plus felony convictions that were hyper-prioritized against the people in the C suites, you know, the CEOs and CFOs and such. So we know how to do it. We know how to fix it. We have the people who did fix it available to fix it. To date, the only candidate that has signed on and said that she would support and implement those measures were she elected president is Jill Stein. And this is an obvious thing: Hillary Clinton should adopt the Bank Whistleblower United plan and say, I’m going to do this, and I’m going to do this within the first 90 days of getting in office, and I’m going to appoint people like Michael Patriarca to run the senior regulatory ranks, ’cause I know they have a track record of actually taking on the most powerful folks and refusing to blink under political pressure, even when, in that case, five U.S. senators tried to hammer him, and the speaker of the House, not to take action against Charles Keating. We know how to succeed. We know the people that will succeed. And it’s time, if Hillary Clinton wants to distinguish herself from Donald Trump, to sign on to the Bank Whistleblowers United plan. BROWN: That’s Bill Black. He is an associate professor of economics and law at the University of Missouri-Kansas City. He’s also a white-color criminologist and a former financial regulator. Bill, thank you so much for speaking with us today. BLACK: Thank you. BROWN: And we appreciate you tuning in to The Real News.
DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.