This story is the first chapter in a five-part series:
Michael Bacon strode off the elevator on his way to a hastily called meeting. Walking down the hall on the 12th floor at Wells Fargo's headquarters, he felt a sense of foreboding.
Bacon, a loquacious middle-aged executive with a Texas drawl and an easy charm, was the closest thing to a cop in the San Francisco bank's senior ranks. As chief security officer and director of corporate investigations, he oversaw a unit that provided security for more than 10,000 buildings in all 50 states and 36 countries. His team also included a group of investigators whose job was to probe employee misconduct at the bank.
Bacon was heading into a meeting with his boss, Human Resources Director Hope Hardison. Their relationship had grown tense. It was September 2014, and cheating by low-level employees — trying to meet sales goals by enrolling customers in products without their consent — was becoming a big problem for Wells Fargo.
Bacon, who in dozens of recent interviews provided an inside account of how the bank's high-ranking executives mishandled the phony-accounts problem, felt that he needed to add staffers to the investigations team. He wanted a larger budget, but he worried that he was instead going to be told he'd have to make do with his existing staff of 105 investigators — or worse, that he was going to lose positions.
The wood-paneled C-suite at 420 Montgomery Street in San Francisco's financial district had an old-school feel. Inside its relatively small rectangular footprint were the offices of the bank's most powerful executives. Most of them had been colleagues 15 years or more, which meant that Wells Fargo's senior ranks had both continuity and a shortage of new voices who might challenge the status quo.
Carrie Tolstedt, the hyperintense head of retail banking, sat two doors down from CEO John Stumpf, who always wore a suit and tie, and never seemed to have a hair out of place.
As Bacon exited the elevator, he turned left. When he reached the end of the hall, he entered Hardison's office. To his surprise, Chief Administrative Officer Pat Callahan was also awaiting his arrival.
Callahan was nearing her retirement after nearly three decades at Wells Fargo. She was respected for her intelligence, her institutional knowledge and her people skills. She was also known to have the ear of Stumpf, so much so that other executives sometimes used her as an intermediary, figuring that the CEO would react better to a message that came from Callahan.
Hardison, who'd been with the bank since 1993, was Callahan's protégé, one of a number of executives whose careers Callahan had helped advance.
As it turned out, this meeting was not about staffing levels. Instead, the two senior executives had summoned Bacon to inform him of a reorganization. His 400-plus-member team was going to be split in two. The part that provided physical security at Wells Fargo branches and other company properties would join the bank's corporate real estate group. Meanwhile, the employee investigations side would be moved out of human resources and into a risk management unit.
Bacon was offered the opportunity to lead the latter team, but he viewed that option unfavorably. The risk management group was dealing with regulatory problems that had arisen elsewhere in the bank, and Bacon couldn't see a good business rationale for the reorganization, which he regarded as the dismantling of a unit that was performing well.
Bacon suspected two other forces were at work. He figured the reorganization would save money in Hardison's budget at a time when Wells executives were under pressure to cut spending. In addition, he believed that Hardison wanted to wash her hands of the investigations unit, which had been trying to get the bank's senior leadership team to pay more attention to the widening sales misconduct problem.
Fake accounts. Executives who only wanted to hear good news. Tens of billions of dollars in damage. As the bank's chief security officer, Michael Bacon spent years raising concerns about rampant sales abuses. In exclusive interviews, he details how the bogus-accounts scandal unfolded — and argues that it could have easily been stopped.
Hardison declined to comment for this article. But people familiar with her thinking contested the idea that she orchestrated Bacon's departure in order to lessen her own involvement with the sales misconduct problem, as well as the notion that budgetary factors were at play. These people, who spoke on condition of anonymity, said that the investigations unit was moved because it was a risk function, not a human relations function.
As the September 2014 meeting progressed, it became apparent to Bacon that the reorganization was not well conceived. Hardison and Callahan did not have plans for a group that provided support services for the two parts of the corporate investigations unit. The move also seemed rushed. Hardison and Callahan could have sought Bacon's advice on the best way to execute their plan, he felt, but they hadn't.
As the meeting wound down, Bacon indicated that he would likely take a severance package rather than accept a reduced role. Hardison and Callahan seemed to have anticipated this possibility. Bacon was handed a departure agreement, which included one year of severance pay, and given a few days to respond.
Bacon's decision to leave, after more than 13 years at Wells Fargo, brought him a feeling of calm and relief.
The previous fall, the Los Angeles Times had published a pair of articles about sales misconduct at the bank, which he saw as validating the concerns he'd been raising. He initially hoped the media attention would spark meaningful change. But instead of addressing the root causes of the problem, he believed, the bank's management was taking steps to minimize the number of employees who got terminated. Bacon, who turned 48 earlier in the year, had been contemplating leaving for months.
His final days at Wells Fargo were hurried. He contacted managers in his unit to let them know about the changes that were coming. He handed off various responsibilities. And he started cleaning out his office, which was eight floors down from the C-suite in the headquarters building.
Bacon's office held artwork, an FBI commendation letter and pictures of his wife and kids. Commingled with his work documents were various personal possessions, including books, magazine articles and presentations that he'd made to outside groups. As Bacon sorted through his file cabinets, time was running short. His last day in the office had been moved up. He wasn't told why.
Early one evening, Bacon was packing boxes when a colleague who lived near him offered to help with transportation. To heck with it, he thought. He would sort through these papers later. For now, the contents of the file cabinets went into the boxes, which got loaded into an SUV. Soon Bacon was rolling across the Bay Bridge en route to his East Bay home. And certain records were coming with him.
More than eight years later, the fake-accounts scandal has radically altered the fortunes of the nation's fourth-largest bank. Since
To settle civil and criminal investigations, Wells Fargo
Another way of estimating the toll — by comparing the small increase in Wells Fargo's stock price since September 2016 against the much larger rise in share prices across the U.S. banking industry over the same time span — also suggests a massive impact. As of Jan. 30, Wells Fargo's market capitalization of $176.4 billion is about $68 billion below where it would have been if its stock price had mirrored the industrywide trend.
At its core, the fake-accounts scandal was about wealthy executives at the top of the bank victimizing low-paid employees at the bottom. High-level bankers established unrealistic sales goals in an effort to drive growth in the company's cross-sell ratio, a measure of sales to existing customers. The company pitched its cross-sell ratio's persistent growth to investors as a key differentiator from other banks. That narrative helped drive stock price gains, which led to higher compensation for executives at the top.
Meanwhile, the aggressive sales goals filtered down through layers of management. Middle managers pressured those below them to fulfill the goals. At the company's lowest rungs, those who failed to meet their sales targets often suffered harassment and bullying. Many of them — fearing that they'd lose their jobs — resorted to cheating, sometimes after being coached by colleagues on how to do so.
"The pressure included the threat of disciplinary action and termination, as well as actual termination, for failure to meet the unreasonable goals,"
In April 2017, members of Wells Fargo's board of directors published a
The bank's regulators reached similar conclusions. After a
There's still a lot to learn about the U.S. banking industry's biggest scandal of the last decade. Some questions may never be answered. For example: Just how widespread was the misconduct?
In 2016, when regulators hit Wells Fargo with a $185 million penalty, they cited the bank's own estimate that 1.5 million deposit accounts, plus an additional 565,000 credit card accounts, may not have been authorized by customers. While expert witnesses hired by former bank executives facing civil charges have cast doubt on the accuracy of those numbers, Wells Fargo later increased the estimated total
There's no way to know for sure how many customer accounts were opened without permission. Underscoring the uncertainty are the results of a separate review by Wells Fargo of its own internal systems, which have never been reported.
According to a
Back in 2019, Wells Fargo hired an outsider, Charlie Scharf, as its CEO. In a Jan. 24 statement to American Banker, the bank said: "As we've said many times before, at the time of the sales practices issues, the company did not have in place the appropriate people, structure, processes, controls, or culture to prevent the inappropriate conduct. This was inexcusable."
"The past culture that gave rise to the conduct is reprehensible and wholly inconsistent with the values on which Wells Fargo was built. Our customers, shareholders and employees deserved more from the leadership of this company," the statement continued.
Though Michael Bacon departed two years before the scandal blew open, he spent more than 13 years at the bank as its sales integrity problem intensified.
His story — told through interviews and deposition testimony, with many details corroborated by his contemporaneous emails and the sworn testimony of his former colleagues, and bolstered by the firsthand account of a colleague who stayed at Wells until 2019 — is the first detailed public account by a high-level corporate insider of how the fiasco developed.
Bacon's recollections do not provide a full picture of senior executives' response to the crisis. There were many emails he did not receive and many high-level meetings he did not attend. But they do offer an unusually deep view of the scandal's early stages from the perspective of an executive who had a unique vantage point.
What emerges is a portrait of a corporate culture that encouraged executives to suppress bad news and fostered a belief that Wells could talk its way out of any trouble. The results were a pattern of denial about the seriousness of the company's predicament and an inclination to treat symptoms rather than the problem's root cause.
Before Bacon's exit in September 2014, he was close enough to the 12th floor at 420 Montgomery Street that he had insights about who knew what, and when, in the bank's most senior ranks. In fact, he was often the executive who was alerting higher-ups about the ongoing problems.
Bacon was also close enough to the company's ground level that he had knowledge about the numerous schemes employees devised in an effort to meet unrealistically high sales goals. His team of investigators did the repetitive work of questioning branch-based staffers who were suspected of sales integrity violations.
Those investigators were able to see low-level employees as real people — with families to feed and bills to pay — rather than as the numerical abstractions they often became in the data that got presented in the corporate boardroom.
Sometimes the individuals who cheated to meet their sales goals circled the wagons. In one 2011 case, investigators found that the vast majority of staff members at a California branch had more than 20 Wells Fargo accounts, including three individuals who had more than 50 personal accounts. "All store team members were interviewed and none of them admitted to opening accounts to help bankers receive sales credit," a regional investigations manager wrote in a report.
But much more often, when employees were interviewed by members of Bacon's team, they confessed. They typically said that they had not cheated in order to make more money. They had done so to keep their jobs.
In one of his interviews with American Banker, Bacon said that his investigators hated working cases that required them to grill low-level employees who had cheated to meet their sales goals.
"We had the most professional staff, but they loathed doing sales integrity cases," Bacon recalled. "It's not fun interviewing somebody that did something just to keep their job, and you know they're going to lose their job. And they cry, and they share with you."
Bacon has light eyes and a long, sun-tanned face. After leaving Wells Fargo, he moved with his family to Delray Beach, Florida. He has ditched the ties he used to wear to work in favor of open-collared shirts. As the founder and managing partner of a consulting firm called
Bacon, who's now 56, has stayed in touch with many of his Wells Fargo colleagues, but he doesn't envy those who remain at the bank. "I loved my corporate job, I loved it. And I was really good at it," he said. "But at the end of the day, it was not an environment that I could sustain."
Read the next installments in this series:
