%1

As a former employee who had blown the whistle on ITT, an operator of some 140 for-profit schools, Dan Graves was happy that the government had finally taken action to protect students from the company’s aggressive sales tactics, which lured them into debilitating debt and provided little in the way of an education, the New York Times reported on Saturday. Still, he wondered what had taken the government so long. After all, it has been 17 years since Graves and another former ITT employee brought a suit alleging that the company had systematically violated the law governing compensation of sales representatives. The two former employees shared extensive documentation with federal prosecutors and regulators. These officials expressed keen interest, Graves said, and estimated that the government could recover $400 million in damages from the case. But by 2004, the lawsuit was dead and Graves’s effort to provide the government with damning evidence had come to naught. Now that ITT is in bankruptcy, Graves’s whistle-blower experience is instructive: It spotlights a costly regulatory failure that allowed ITT to stay in business far longer than it otherwise might have, Graves said.

As Wells Fargo’s new chief executive officer, Tim Sloan, tries to contain the sham-account scandal, Los Angeles authorities, former employees and community activists are examining if bank employees singled out Latinos, particularly those without Social Security numbers or a strong command of English, as they opened unauthorized accounts, Bloomberg News reported yesterday. The most serious allegations have been leveled by the city attorney’s office in Los Angeles, Wells Fargo’s biggest market and the bulwark of its stronghold in California. After illegal sales practices at the bank first came to light several years ago, the city attorney spent 16 months investigating whether employees had singled out Latinos in order to hit aggressive sales targets. Investigators alleged that Wells Fargo had in some cases targeted Mexican nationals with identification cards issued by consular offices. Read more. 

In related news, Massachusetts yesterday joined a handful of other states suspending business with Wells Fargo & Co. amid the bank’s high-profile consumer fraud scandal, MorningConsult.com reported. Massachusetts Treasurer Deborah Goldberg has instructed an assistant treasurer to remove the lender from a list of approved underwriters for one year, said Chandra Allard, a spokeswoman for Goldberg. The move comes after Goldberg criticized Wells Fargo’s behavior in a statement and asked staff to review the state’s dealings with the bank, Allard said. Other states — Ohio, California, and Illinois — have also halted business relationships with Wells Fargo. The bank’s new CEO, Tim Sloan, told Bloomberg News last week that he expects to win back those states’ business. Read more. 

Wells Fargo announced yesterday that its longtime chief executive and chairman, John G. Stumpf, is stepping down, the latest turn for the embattled megabank after it admitted that thousands of low-level employees had set up sham accounts to meet sales quotas, the Washington Post reported today. The San Francisco-based bank has repeatedly apologized and said that it had fired 5,300 employees for misconduct and put in place more stringent internal controls. But that has not been enough for regulators and lawmakers, including Sen. Elizabeth Warren (D-Mass.), who called on him to resign. Stumpf went as far as pledging to give up $41 million in compensation to account for the scandal, but his overture did little to quiet critics. Tim Sloan, another long-time Wells Fargo executive, will take over Stumpf’s duties as CEO. A board member, Stephen Sanger, will now serve as chairman, effectively dividing power that had previously been consolidated under Stumpf. Sanger is the former chief executive of General Mills.

A federal jury in Seattle has ordered Jessica Blixseth, estranged wife of former billionaire Timothy Blixseth, to hand over more than $9 million in assets her husband transferred to her in an attempt to avoid paying hundreds of millions of dollars in judgments against him stemming from the collapse of his Yellowstone Club real estate business, Forbes.com reported yesterday. The jury found Jessica Blixseth liable for accepting the transfer of private firms plus proceeds from the sale of Blixseth’s yachts, Piano Bar and Piano Bar Too, and a Citation jet into JTB LLC, a firm Jessica Blixseth controlled. Blixseth, who now goes by her maiden name Ferguson, was also found liable for transferring $600,000 to her mother, Cherrill B. Ferguson. Blixseth himself was hit with a $287 million final judgment by a Montana bankruptcy judge on Sept. 28. Read more. 

Pull back the curtain on advanced fraudulent transfers. Pick up ABI’s Advanced Fraudulent Transfers: A Litigation Guide to gain critical insight into the elements of advanced fraudulent transfer claims. 

For years similar or identical complaints from Wells Fargo workers flowed into the bank’s internal ethics hotline, its human resources department, and individual managers and supervisors about the practices of opening sham accounts, the New York Times reported today. In at least two cases in 2011, employees wrote letters directly to CEO John G. Stumpf — who became the company’s chief executive in 2007, and its board chairman in 2010 — to describe the illegal activities they had witnessed. Since the ethics scandal erupted in public last month, Stumpf has testified twice in front of Congress that he and other senior managers only realized in 2013 that they had a big problem on their hands — two years after the bank had started firing people over the issue. Now, regulators, lawmakers, current and former employees, and others are asking: How was it that this drumbeat of complaints did not set off loud alarm bells earlier? Rep. Maxine Waters (D-Calif.) in congressional hearings last month pointed to court filings from 2008 from employees who tried to blow whistles, and to a Wells Fargo sales quality manual that was updated in 2007 — just months after Stumpf became chief executive, and with his executive guidance — to remind employees that they needed to obtain a customer’s consent before opening an account.

Wells Fargo, under fire from all sides because of a scandal in which employees set up illegal accounts to meet sales quotas, announced a restructuring of its top management yesterday, solidifying the leadership structure beneath Timothy J. Sloan, who is widely expected to succeed John G. Stumpf, the bank’s embattled chairman and chief executive, the New York Times reported today. The changes, to take effect on Nov. 1, will place a number of top executives directly under the purview of Sloan, a 29-year company veteran who was promoted last November to Wells Fargo’s No. 2 spot, becoming the bank’s president and chief operating officer. Sloan, who has been head of Wells Fargo’s wholesale banking division — which does business with companies and organizations, not personal account holders — has been largely insulated from the scandal engulfing the company’s retail banking group. That division has been in crisis mode since Wells Fargo agreed last month to pay $185 million in penalties for fraudulently opening as many as two million bank and credit card accounts that may not have been authorized by customers. Read more. 

In related news, Wells Fargo & Co. managers pushed bankers to sign up customers for potentially costly overdraft protection that they didn’t always need or realize they were getting, according to current and former bankers and managers, the Wall Street Journal reported today. Members of Congress expressed concern about potential overdraft problems at the bank during two hearings last month with Wells Fargo Chief Executive John Stumpf. He was called to Capitol Hill after the bank in September agreed to a $185 million fine and enforcement action over what the Consumer Financial Protection Bureau called the “widespread illegal practice” of opening unauthorized accounts. The CFPB is also reviewing overdraft-fee practices broadly at banks, the agency has said. Read more. (Subscription required.) 

In a request seeking to fit the punishment to the crime, the U.S. is asking that the head of a company that passed off fake grated Parmesan cheese as the real thing be sentenced to time at a food pantry or soup kitchen. While jail remains an option, sentencing documents filed Tuesday by federal prosecutors in U.S. District Court for western Pennsylvania are only asking that Michelle Myrter, president of Castle Cheese Inc. in Slippery Rock, Pa., receive 0 to 6 months in lockup, along with her community service. Her attorney has asked for probation. Myrter pleaded guilty seven months ago to federal misdemeanor charges involving food adulteration. The prosecutors said her company and two others controlled by her family made and distributed hundreds of thousands of pounds of fake cheese, passing it off as 100 percent Parmesan to stores around the country between 2010 and 2013. The other two companies charged — Universal Cheese & Drying Inc. and International Packing LLC — also pleaded guilty earlier this year to charges of conspiracy and money laundering. These companies are no longer operating and have been unable to pay $1 million in fines that were part of their plea agreements.

The scandal over improper sales practices at Wells Fargo & Co extended to thousands of small-business owners, according to a U.S. lawmaker, raising questions about the scope of the bank's issues with unauthorized accounts, Reuters reported today. Sen. David Vitter (R-La.), chair of the Senate Small Business & Entrepreneurship Committee, demanded that Wells Fargo Chief Executive John Stumpf provide a "full accounting" of customers affected. Discussions between congressional staffers and Wells Fargo "have indicated that the fraudulent activity of your employees was not limited to Wells Fargo's consumer banking operations," Vitter wrote. "Thousands of small business owners were impacted by this fraud." A person familiar with Vitter's probe say Wells has identified about 10,000 small business accounts that were subject to improper practices. Revelations of Wells Fargo's problems with small-business customers come almost a month after it reached a $190 million settlement over opening as many as 2 million accounts in retail customers' names without their knowledge. The bank has said that it fired about 5,300 employees for improperly opening the accounts.