Wells Fargo Faces Scrutiny for Black Marks on Ex-Employee Files

2016-11-04 01:32:13

 

Wells Fargo Faces Scrutiny for Black Marks on Ex-Employee Files

Three senators fired at Wells Fargo’s new chief executive with fresh ammunition on Thursday: the hundreds of termination notices the bank filed with an industry overseer over the last five years as employees left the company in connection with its sales scandal.

When brokers and certain other registered representatives leave a bank — voluntarily or otherwise — the company is required to file a notice with the Financial Industry Regulatory Authority, known as Finra. Called a “U5,” the form includes a field where the bank must disclose any allegations that played a role in the employee’s departure.

A negative comment on a U5 is a scorching mark that can make it almost impossible to find another job in the banking field.

“It’s like being blackballed,” said Marc Schifanelli, a lawyer who specializes in Finra arbitration. “It can be a showstopper for a career.”

Some former employees say that Wells Fargo used that power to retaliate against those who tried to blow the whistle on the bank’s fraudulent activities.

To investigate these claims, three Democratic senators asked Finra for data on Wells Fargo’s U5 filings. The responses they received “paint a disturbing picture,” the senators wrote in a letter to Timothy J. Sloan, Wells Fargo’s chief executive, on Thursday. Mr. Sloan took over from John G. Stumpf, who abruptly retired last month after intense criticism of his handling of the bank’s crisis.

The U5 forms, the senators wrote, “confirm that Wells Fargo had ample information about the scope of fraudulent sales practices” long before it reached a settlement in September with the Consumer Financial Protection Bureau.

“In addition,” the letter continued, “public reports indicate that Wells Fargo may have filed inaccurate or incomplete Form U5s for fired employees and that the bank may have done so to retaliate against whistle-blowers. If this is the case, then it would appear that Wells Fargo concealed key information from regulators.”

Wells Fargo acknowledged in September that it had fired 5,300 employees in the last five years for creating as many as two million bank and credit card accounts not authorized by customers. The disclosure provoked widespread outrage, touching off a scandal that has engulfed the bank in negative publicity and legal fallout.

Around 600 of those 5,300 fired workers were registered with Finra, but only 200 of them were specifically terminated for issues related to the sham accounts, according to the records Finra provided to lawmakers.

So why, the senators asked, didn’t Wells Fargo include negative marks in the other 400 employees’ files? That information could have helped Finra and other regulators detect a pattern of illegal activity much sooner, they wrote.

They also want to know if Wells Fargo used unfavorable U5 filings as a weapon against employees who tried to draw attention to the bank’s misdeeds.

Of the 18,000 U5 filings Wells Fargo submitted between 2011 and 2015, almost 20 percent indicated that the worker was “discharged” or “permitted to resign.”

Senator Elizabeth Warren of Massachusetts and Senator Robert Menendez of New Jersey, who are on the Senate Banking Committee, together with Senator Ron Wyden of Oregon signed the letter to Mr. Sloan, asking for many more details on those terminations and a response by Dec. 5.

Jennifer Greeson Dunn, a Wells Fargo spokeswoman, said that the bank had “zero tolerance for retaliation” and was looking into the former workers’ claims.

“As we already said in two congressional hearings, Wells Fargo has been working for years to stop wrongful sales practices behavior,” Ms. Dunn said. “We acknowledge we could have acted sooner and more aggressively.”

Wells Fargo has run into trouble before with its U5 filings.

In 2011, it paid a $1 million fine to Finra for failing to submit some of the forms on time. The same year, Finra ordered the bank to pay a former broker, Maxim Minevich, $500,000 for defaming him in a U5 filing. (Wells Fargo filed a petition to vacate the award. The case and other legal matters related to it were settled this year; Wells Fargo agreed to alter the information in Mr. Minevich’s U5.)

Some former workers say that Wells Fargo used the filings as a blunt instrument, with little regard for the damage that inaccurate or imprecise allegations could inflict on people’s careers.

Ivan Jerskey, who was fired by Wells Fargo in September, is fighting the bank about its filing on his departure.

Mr. Jerskey was a financial adviser in Marin County, Calif., for high-net-worth clients. He was fired, he said, for errors related to the creation of a new account for an older client whose two daughters had trustee powers over his finances.

Mr. Jerskey opened the account after obtaining only the primary client’s signature, in violation of a bank policy — one that employees were actively told to overlook, he said — requiring the signatures of all three trustees. Mr. Jerskey also checked off a box on an account form saying that he had met all three trustees “face to face,” even though he had not.

“It never occurred to me that I was doing this incorrectly,” he said. “It was completely common practice, not just with me but with everybody at the branch. That’s how we were told to do it by several managers and departments.”

Wells Fargo filed a U5 saying that Mr. Jerskey had opened the account “in violation of firm policies,” which may be technically true, Mr. Jerskey said, but it omits the fact that he was doing as his bosses instructed.

He is concerned that in Wells Fargo’s effort to clean house, people like him have become collateral damage. The negative entry in his file has complicated his search for a new job.

“It’s almost slander,” he said. “It’s extremely difficult to remove these kinds of records, and it sets off alarms. I think they’re just trying to make examples out of people.”

Wells Fargo declined to comment on Mr. Jerskey’s employment record.

Most former Wells Fargo employees do not have U5 filings. Only those who work as brokers and financial advisers are required to register with Finra.

Jonathan J. Delshad, a lawyer in Los Angeles who is representing former Wells Fargo employees in a case seeking class-action status, said the U5 issue affected only 20 or so of the 500 former workers who had contacted his office. But for those people, it is a life-altering problem, he said.

“There’s probably a lot of people out there with these black marks who don’t know,” he said. “People apply for new jobs and get denied somewhere in the process, and that’s how they find out.”

Negative U5 comments can effectively kill off a banker’s employability, said Mr. Schifanelli, the lawyer who handled Mr. Minevich’s case against Wells.

“Frankly, the success rate in challenging them is not very high, and if the financial analyst ultimately prevails, their career can be ruined by the gap in their résumé,” he said.

Mr. Minevich no longer works in the banking industry, Mr. Schifanelli said.

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