LOS ANGELES — Carrie Tolstedt, the former retail banking chief at Wells Fargo, was sentenced Friday to three years of probation, including six months of home confinement — a major setback for federal prosecutors who wanted to send a message by putting a high-level big-bank executive in prison.
Tolstedt, who is the only Wells executive to face criminal charges in connection with the bank's
Her case has been closely watched as a bellwether for the question of whether prosecutors have the appetite and ability to jail wrongdoers in the upper echelons of big banks. Prosecutors
Before announcing Tolstedt's sentence, U.S. District Judge Josephine Staton said that she took into account the fact that prosecutors only brought criminal charges against a single individual in connection with the sprawling phony-accounts fiasco.
The sentence she imposed was largely in line with what Tolstedt's lawyers requested, as well as with the recommendation of the U.S. Probation Office, which advises federal courts based on the U.S. Sentencing Commission's guidelines.
"What would be unacceptable would be to have one defendant bear the weight of this entire scandal," Staton said, adding that the goal of deterrence is better served by holding as many culpable individuals accountable as possible.
"I'm not going to speculate as to why that did not occur here," Staton said. "But I do have to keep in mind that the goal of providing just punishment cannot morph into excessive punishment for a single individual in order to send a message."
Earlier in the sentencing hearing, Assistant U.S. Attorney Alexander Schwab argued that prison time for Tolstedt would serve to deter criminal activity by other corporate executives — and that the need to send such a message was especially strong in Tolstedt's case, because the kind of misconduct she committed is rarely discovered and punished.
A sentence of probation but no prison time, Schwab said, would send the wrong signal to the occupants of corporate boardrooms. "That's a message that the rules of the game are different for people who are in positions of power and positions of wealth," he said.
Tolstedt, who was joined in court by her husband, her pastor and numerous friends, as well as her lawyers, became emotional after the sentence was imposed. She hugged supporters before exiting the downtown Los Angeles courtroom.
During the hearing, Tolstedt briefly addressed the judge, offering an apology for her actions as the head of Wells Fargo's retail unit, which was then known as the Community Bank.
"I sincerely apologize, and I know that as the leader of the Community Bank, accountability rested on my shoulders," Tolstedt said. "It's my commitment to live an honorable life."
As part of her plea agreement with the Department of Justice, Tolstedt admitted to omitting certain information from a 2015 memo that Wells Fargo sent to its main regulator, the Office of the Comptroller of the Currency.
The missing information included the fact that roughly 1,000-1,200 bank employees per year had either been fired or resigned in the midst of investigations over sales misconduct.
The plea agreement allowed for a prison sentence of up to 16 months, which was at the high end of the 10-16 month range calculated under the federal sentencing guidelines.
Staton said Friday that forthcoming changes to the sentencing guidelines mean that the guideline range for Tolstedt would have dropped to 6-12 months in prison if she were sentenced after November 2023.
Still, the judge, an appointee of then-President Barack Obama, elected not to impose any prison time. She noted that Tolstedt's lawyers had provided evidence that their 63-year-old client has a life-threatening medical condition, but she did not appear to put a lot of weight on that factor, since she pointed out that medical care is available in prison.
Enu Mainigi, a lawyer for Tolstedt at Williams & Connolly, said earlier in the hearing that Tolstedt's medical condition relates to the size of her esophagus. Tolstedt had chosen not to proceed with taking potentially life-saving medication until after her sentence was imposed, Maingi said.
Mainigi also argued that what Tolstedt has already endured since 2016 is punishment enough.
She said that Tolstedt was fired from her job, became the public face of the phony-accounts scandal in news coverage and was banned from working in the banking industry.
Tolstedt also lost countless friends, received harassing phone calls, lived for seven years under the cloud of three government investigations, and will be a felon for the rest of her life, her lawyer said. Several banks will not do business with Tolstedt as a result of her status as a felon, Mainigi added.
Mainigi also said that a sentence that did not include incarceration would be in line with what other similarly situated defendants over age 60 have received.
"Sentencing Ms. Tolstedt to probation would not be special treatment," she said.
Schwab, the assistant U.S. attorney, countered that there are not many defendants who are similarly situated to Tolstedt, since very few corporate executives are held criminally responsible for misconduct. That reality has contributed to delegitimizing the criminal justice system, he said.
Though the judge declined to impose prison time, she did include a requirement that Tolstedt perform 120 hours of community service, which was not part of the Probation Office's recommendation. And she took issue with certain arguments that Tolstedt's camp put forth.
For example, Tolstedt's lawyers argued that their client shouldn't go to prison because she is a caretaker for her aging mother. But Staton said those responsibilities wouldn't be a factor in her sentence, since Tolstedt's mother lives in another state, and the family has the means to pay for caregiving assistance.
In a letter sent before the sentencing, Tolstedt's husband argued that integrity is best demonstrated by a person's behavior when no one is looking. He cited an anecdote in which his wife returned to the grocery store to pay for items that mistakenly hadn't been scanned at checkout.
But the judge took issue with that line of reasoning, noting that the cost of paying for the groceries was small. "In fact, integrity is best demonstrated by how someone behaves when there is a price to be paid for doing the right thing," Staton said.
Carrie Tolstedt, scheduled to be sentenced Friday for her role in the company's phony-accounts scandal, has already paid for her crime and should receive three years probation, her attorneys argue in a sentencing memo. Prosecutors have recommended a year in prison.
The May 2015 memo that led to the criminal obstruction charge was prepared by Tolstedt and other Wells Fargo executives for the risk committee of the bank's board of directors. Tolstedt knew that it would also be provided to the OCC, according to the plea agreement.
In addition to information about employee terminations, the memo omitted the fact that an internal effort at the San Francisco bank to monitor for misconduct used thresholds that only triggered investigations of workers who were flagged for the most egregious behavior.
Staton said that the OCC appears to have possessed the information that was withheld from the memo elsewhere. But she also noted that an intent to obstruct the agency's investigation is all that's necessary to establish criminal culpability.
Tolstedt knew, she said, that the memo withheld information in an effort to minimize the sales misconduct to regulators. "And it's highly likely that she did that to preserve her quite lucrative executive position with the bank," the judge added.
Tolstedt left Wells Fargo in 2016, shortly before the bank was engulfed in scandal over revelations that its employees opened millions of potentially unauthorized customer accounts. Wells Fargo
During her long career at Wells, Tolstedt received more than $100 million in compensation, according to prosecutors. The bank clawed back roughly $65 million in stock options and restricted shares from Tolstedt as part of its damage-control efforts in response to the scandal.
Tolstedt has also paid more than $21 million in fines and penalties to the OCC and the Securities and Exchange Commission for her role in the wrongdoing.
