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Speaker 1: The Wells Fargo sale scandal, which involved bank employees creating

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Speaker 1: millions of fake bank and credit card accounts, has already

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Speaker 1: resulted in the resignation of former CEO John Stump, a

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Speaker 1: hundred million dollar fine, and millions of additional dollars in

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Speaker 1: legal settlements. And now the independent directors of Wells Fargo,

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Speaker 1: assisted by the law firm of Sherman and Sterling, have

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Speaker 1: issued a report about the sales scandal. The report says

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Speaker 1: that the root course cause of the sales scandal was

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Speaker 1: a combination of the bank's decentralized culture, performance management system

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Speaker 1: and overly aggressive sales targets, but it also points to

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Speaker 1: mistakes by the bank's control functions, including its General Council's office.

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Speaker 1: Here to talk with us is Gabe Friedman, a reporter

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Speaker 1: for Bloomberg b na's Big Law business who covered the

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Speaker 1: report when it came out. Gabe, tell us, what can

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Speaker 1: you summarize for us what the report says about what

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Speaker 1: happened at Wells Fargo. Yeah, sure, so, I mean I

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Speaker 1: think you got the sort of basic um summary down

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Speaker 1: pretty well. But you know, the report said there was

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Speaker 1: a failure among the senior management um basically pretty much

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Speaker 1: throughout the all departments, almost it said to sort of

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Speaker 1: appreciate the seriousness or the scale of of the abusive

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Speaker 1: sales practices that existed within the community banks, the retail

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Speaker 1: banking UM sector of it. UM. So basically for years

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Speaker 1: there is this problem of employees, in order to meet

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Speaker 1: their sales targets, creating fake accounts, you know, fake credit

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Speaker 1: card accounts and checking accounts and customers names, um. And

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Speaker 1: so yeah, I mean it basically that that sort of

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Speaker 1: a summary of what UM. The problem was that no

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Speaker 1: one sort of treated this as a sort of systemic

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Speaker 1: issue but kind of looked at it each time it

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Speaker 1: got flagged various ways, but for whatever reason, it was

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Speaker 1: never sort of dealt with in any meaningful type away. So,

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Speaker 1: was that the criticism of the General Council that the

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Speaker 1: General Council's office didn't look at it in a larger

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Speaker 1: way and looked at each individual case or was there

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Speaker 1: more um? Yeah, you know what I mean? I think, UM,

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Speaker 1: I think that the sort of question that everyone was

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Speaker 1: asking was when you read the report and you look

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Speaker 1: at it and it says, you know, this is a

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Speaker 1: problem that got flagged over a decade ago in the

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Speaker 1: early au there were some mass terminations about this. Um,

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Speaker 1: they sort of dealt with it as sort of discrete

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Speaker 1: issues each time, they dealt with it as sort of

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Speaker 1: like a new issue, and kind of always failed to

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Speaker 1: sort of see the bigger picture that that this was

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Speaker 1: going to be a widespread problem that was related to

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Speaker 1: policies and was not sort of just localized to a

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Speaker 1: particular branch, but kind of all throughout the country. Um.

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Speaker 1: And so yeah, I was sort of I think it's

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Speaker 1: that sort of tunnel vision is maybe a way to

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Speaker 1: describe it. Okay, what's the specific criticism of the lawyers

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Speaker 1: at Wells Fargo here, because there, you know, if it's

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Speaker 1: if it's the corporate culture that's the problem, you know,

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Speaker 1: why would you blame on the lawyers. Yeah, um, well

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Speaker 1: that's a good question. I mean, so just to be clear,

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Speaker 1: I mean, the lawyers are not are obviously, you know,

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Speaker 1: just the members of the executive committee that the most

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Speaker 1: senior lawyers are. And um, they were, you know, not

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Speaker 1: the only ones blamed. But I think that the lawyer's

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Speaker 1: job is to sort of stop these sort of problems,

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Speaker 1: um and nipped them in the bud. So they got

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Speaker 1: involved pretty early on. Um, back in in two thousand two,

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Speaker 1: there was like a whole branch that basically they found

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Speaker 1: was doing this, which was, you know, far earlier than

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Speaker 1: I think anyone realized this was going on until until

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Speaker 1: this report came out last week. UM. But so the

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Speaker 1: lawyers for instance, UM, you know what one of the

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Speaker 1: specific criticisms of the lawyers, besides sort of not flagging

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Speaker 1: this more for the executive or the board to sort

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Speaker 1: of change policies and stuff, was that, Uh, there was

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Speaker 1: a meeting in May two thousand and fifteen. It was

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Speaker 1: it was this was just after one of the first

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Speaker 1: lawsuits was filed by a regulator UM in Los Angeles

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Speaker 1: and UM the board specifically, it was actually for the

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Speaker 1: Risk Committee, which was a committee a manager you know,

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Speaker 1: supposed to supposed to monitor risk at the bank. And

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Speaker 1: they specifically asked how many employees have been fired at

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Speaker 1: this point. It's two thousand fifteen, and there's a conference

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Speaker 1: call described in this report between legal and members of

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Speaker 1: the legal department and other people. And although about two

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Speaker 1: thousands hundred people have been fired at this point, when

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Speaker 1: the when the Risk Committee after that number, they don't

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Speaker 1: give it to him. They tell them it's only about

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Speaker 1: two hundred thirty employees, and they really minimized the situation.

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Speaker 1: They said, not systemic, our controls have been effective in

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Speaker 1: detecting improper behavior. And of course, after the meeting, that

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Speaker 1: committee found out that the number was, you know, maybe

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Speaker 1: ten times what they told them that it was actually

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Speaker 1: like sort of two you know, over two thousand employees

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Speaker 1: have been fired, and so they were pretty critical. Um

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Speaker 1: now that that that meeting, that was that was the

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Speaker 1: g C who gave the opening presentation at that meeting.

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Speaker 1: So um, I think there's a lot of criticism of

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Speaker 1: him just stemming from that. So, Gabe, is this report

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Speaker 1: getting attention from in house lawyers at other companies? Uh? Yeah, absolutely. Um,

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Speaker 1: I mean that's funny to say that, but yeah, there

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Speaker 1: is a lot of talk that you've seen, even if

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Speaker 1: you just go on Twitter or like linked in. I

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Speaker 1: saw I saw Abercrombie and Fitches GC was on was

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Speaker 1: on They're sort of saying this is huge. And then

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Speaker 1: I talked to the Association of Corporate Council and this

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Speaker 1: is something I've heard from a lot of lawyers is

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Speaker 1: that this report is sort of the next big sort

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Speaker 1: of landmark report. It's a look inside of a law

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Speaker 1: department which you don't ordinarily get where you get to

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Speaker 1: see sort of the mistakes in it. And you've got

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Speaker 1: similar reports from this out of some of the biggest

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Speaker 1: scandals you can think of in the past decades. I

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Speaker 1: can go all the way back to end Royn there

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Speaker 1: was another sort of report that came out where you

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Speaker 1: could see why none of the problems were caught addressed earlier,

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Speaker 1: and at General Motors there was something similar. So I

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Speaker 1: my sense from talking to lawyers is that if this

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Speaker 1: is a report that's going to be studied uh in

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Speaker 1: law schools and by general counsel and other lawyers for

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Speaker 1: a long time. Given that gave what what lessons should

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Speaker 1: general councils learn about the role they should play in

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Speaker 1: their corporations. Yeah, that's a really interesting question. I mean,

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Speaker 1: I think what what you're hearing if you talk to people,

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Speaker 1: um who have read the report, and what they say

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Speaker 1: is that, you know, the g C is a is

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Speaker 1: a sort of unique role. It's they you know, they

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Speaker 1: are they are the legal sort of mind of the company,

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Speaker 1: and their role is not simply just to sort of

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Speaker 1: stay whether something is illegal or legal, but there's sport

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Speaker 1: of sort of give guidance to the company on whether

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Speaker 1: something is creating too much risk. And so I think

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Speaker 1: one lesson that you hear GC is talking about UM

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Speaker 1: who've read the report is that you know, you have

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Speaker 1: to be mindful not to sort of be to my opic,

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Speaker 1: too focused on just sort of mitigating the legal risk,

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Speaker 1: but also try and guide the company to take a

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Speaker 1: path that's UM going to eliminate policies which which are

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Speaker 1: going to create the sort of systemic risk that that

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Speaker 1: occurred at Wells Fargo, where you know, an entire banking

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Speaker 1: I think we're gonna I think we're gonna have to

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Speaker 1: end the conversation there. That's Gabe Friedman of bloom of

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Speaker 1: Bloomberg Byna's Big Law Business. Thanks very much for being

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Speaker 1: on Bloomberg Law today. That's it for this edition of

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