An industry group representing bank directors is accusing regulators of acting unfairly when they sought to collect millions of additional dollars from three individuals implicated in the fake-account scandal at Wells Fargo.
The proposed increases were disclosed last month in legal filings and came more than a year after the Office of the Comptroller of the Currency filed its notice of charges. The increases would
“As far as we know, this is unprecedented,” the American Association of Bank Directors said Tuesday in an email to its members. “To learn at this late date that the penalties sought are two or three times higher than stated in the notice is extraordinarily unfair.”
The OCC has not brought cases in connection with the fake-account scandal against any current or former members of Wells Fargo’s board of directors. But the charges against the three former Wells executives rely on the same legal authorities that regulators often use to seek penalties from bank directors. David Baris, the industry group’s president, expressed concern about the precedent being established.
“Will the sudden doubling and tripling of civil money penalties sought mid-stream in the Wells actions make it impossible from a practical level for a target in the future to avail himself or herself of their constitutional and statutory rights to an administrative review process?” he asked.
OCC spokesman Bryan Hubbard declined to respond, citing the fact that the litigation is currently pending.
The OCC asked for the higher penalties in filings that also sought a ruling by an administrative law judge recommending that the cases be resolved in the agency’s favor. Responses from the three former Wells Fargo executives are expected soon.
The OCC is now seeking a $10 million civil money penalty from former community banking executive Claudia Russ Anderson, up from the $5 million it had previously sought. The agency is also seeking a $7 million penalty from former chief auditor David Julian, up from $2 million before, and $1.5 million from former executive auditor Paul McLinko, up from $500,000.
The cases against executives implicated in the fake-account scandal represent one of the largest efforts ever by U.S. regulators to punish individual bankers. The OCC has reached settlements with former Wells Fargo CEO John Stumpf, who agreed last year to pay a $17.5 million penalty, and six other individuals whose monetary payments totaled approximately $8.5 million.
The three former Wells executives who now face potential penalties totaling $18.5 million are scheduled to go to trial in September in Sioux Falls, S.D. The OCC alleges that they failed to perform their duties and responsibilities adequately, and also misled others about the extent of the bank’s problems. The defendants’ attorneys have called the allegations unfounded.
When the OCC filed its charges, it noted that it could decide at a later date to increase the penalties being sought.
In the OCC’s recent filings, lawyers for the agency argued that the higher proposed penalties are supported by the evidence, but they did not provide a specific explanation for why they changed their minds.
The OCC also stated that the larger payments it is seeking are below the statutory maximum of $50,334 for each day that the alleged misconduct occurred.
Increases in the amount of money being sought from defendants are sometimes characterized as a “trial penalty” — harsher repercussions for people who choose to contest the allegations rather than agreeing to a settlement up front.
Baris, the president of the bank directors group, argued that the OCC appears to be using the defendants’ decisions to defend themselves as evidence of bad faith that justifies higher penalties. In its legal filings, the OCC accused the former Wells executives of a lack of good faith, citing their unwillingness to accept responsibility for the fake-account scandal.
“The targets had a statutory and constitutional right to defend themselves,” the industry group said in its email to members. “How can that be twisted to make the exercise of that right grounds to support a higher penalty?”
Art Wilmarth, a professor emeritus at George Washington University’s law school, had a more sympathetic reaction to the OCC’s decision to seek more money from the defendants. Wilmarth has been critical of the Justice Department for failing to prosecute top executives at big banks following the financial crisis.
He said that the relevant statute offers plenty of support for civil penalties as hefty as those that the OCC is now seeking from the three former Wells executives. “I think they could go higher if they wanted to,” Wilmarth said.
