by: Yian Pan
On September 8th, 2016, Wells Fargo was fined $185 million for creating sham accounts to meet sales goals, the most recent case of wrongdoing by financial institutions. The fine consisted of a $100 million penalty from the Consumer Financial Protection Bureau, $50 million to the City and County of Los Angeles, as well as $35 million to the Office of the Comptroller of the Currency. After the economic crisis in 2008, financial regulators were supposed to increase monitoring and oversight of financial institutions. To ensure that such a crisis would never happen again, President Barack Obama signed the Dodd-Frank Wall Street Reform Act and Consumer Protection Act into law in 2010. Yet the International Business Times reported last year that twenty of the world’s biggest banks have paid over $245 billion in fines in the seven years since, reaching a scale that is approximately on par with Greece’s or Portugal’s annual economy. The table below highlights some of the fines that have been paid out by banks in recent years, and by no means covers all the instances of wrongdoing:
|Year||Name of Institution||Amount||Wrongdoing|
|2012||UBS||$1.5 billion||Also known as the Libor Scandal, for manipulating Libor and other benchmark interest rates|
|2013||JP Morgan Chase||$13 billion||Overstating the quality of mortgages it sold to investors in the years leading up to the financial crisis|
|2013||Deutsche Bank||$1.9 billion||Defrauding housing finance providers Fannie Mae and Freddie Mac into buying $14.2 billion in mortgage-backed securities|
|2014||Bank of America||$16.7 billion||Fraud claims related to the sale and origin of mortgages|
|2015||“The Cartel”: Citigroup, JPMorgan Chase & Co, UBS AG, and Royal Bank of Scotland||$5.6 billion combined||Bank traders from these five banks created a secret group – “The Cartel” – and manipulated exchange rates over the course of five years that allowed the banks to make money at the expense of clients and investors|
|2014||Citigroup||$7 billion||Selling sub-prime mortgage-backed securities|
|2016||Goldman Sachs||$5 billion||Selling sub-prime mortgage-backed securities|
The Department of Justice (“DOJ”) also recently asked Deutsche Bank to pay a $14 billion fine for selling sub-prime mortgage-backed securities, though the Bank has stated that it “had no intent to settle these potential civil claims anywhere near the number cited.” While the table illustrates some of the staggering fines that have been paid by banks as a result of their corporate wrongdoings, notably absent is the lack of individual accountability. Even though corporations constitute “legal persons” in the eyes of the law, they cannot function without the individuals under their employ. The DOJ has continuously been criticized over the years for its lenient treatment of corporate officers, and for failing to hold any bank personnel or executives accountable. One key reason for this is the idea that there are “banks that are too big to fail, [just as] there are people who are too big to jail.” However, commentators disagree over the number of individuals who have been held accountable for crimes related to the financial crisis.
In a study of 306 deferred and non-prosecution agreements from 2001-2014, 66 of the cases involved financial institutions, which encompassed commercial banks, investment banks, insurance companies, as well as brokerage firms. Out of the 66 cases, only 23 were accompanied by individual prosecutions, in addition to prosecution agreements. The individuals who were prosecuted were generally also low-level employees with comparatively low sentences, if they received any jail time at all.
In response to extensive criticism, Deputy Attorney General Sally Quillian Yates issued a memorandum (“Yates Memo”) announcing revisions to the Principles of Federal Prosecution of Business Organizations (“Principles”) in September 2015. The Principles were initially issued by the DOJ in 1999. While the Yates Memo emphasizes the continued prosecution of corporations, its sections regarding increased emphasis on individual prosecutions were announced with much fanfare. In the year since the Memo’s release, however, not much seems to have changed. Skeptics have noted that it remains to be seen how much of an effect the Yates Memo will have on prosecutors and corporate investigators – “[w]e have yet to witness a tsunami of individual prosecutions”, even though a year has already passed since the Memo was released.
Massachusetts Senator Elizabeth Warren also wrote a letter to the Inspector General of the DOJ this September, calling the lack of prosecutions “outrageous and baffling”. She further criticized the DOJ’s “record of action on these individuals, nearly six years after … [as] abysmal.” The significance of Senator Warren’s letter is twofold – first, it marks the eighth anniversary of the collapse of Lehman Brothers and also attempts to push for investigations (and possibly jail time) for over twenty-four individuals and corporations who were involved in the 2008 financial crisis. The Financial Crisis Inquiry Commission, a government-appointed group that examined causes for the financial crisis, made the referrals to the DOJ in 2011, yet none were ever prosecuted. The timing of the letter is also of consequence, since the statute of limitations for many financial crimes is 10 years.
Financial crisis cases aside, Wells Fargo is a perfect case that will put the DOJ to test. It first distinguishes itself from other instances in the sheer number of individuals potentially involved: some 5,300 employees have been fired so far for opening sham accounts. The Wells case has prompted extensive public outrage because the bank has yet to identify any high-ranking executives potentially responsible for the corporate wrongdoing. In addition, Wells Fargo’s CEO John Stumpf also attributed the “problem” to an “ethical lapse among the 5,300 employees, most of them low-level bankers and tellers.” However, it appears that the problem was precipitated by Wells’ culture of pressuring bank employees to meet unrealistic sales quotas, and unrealistic sales quotas that necessitated illegal practices in order for employees to keep their jobs. Even though Stumpf has very recently stepped down from his positions, how the DOJ chooses to proceed will remain critical. Its subsequent actions will either send a message to the American people that this country’s justice system is two-tiered – “one for the largest banks, and another for everyone else” – or that there is justice for all.
 Michael Corkery, Wells Fargo Fined $185 Million for Fraudulently Opening Accounts, N.Y. Times (Sept. 8, 2016), http://www.nytimes.com/2016/09/09/business/dealbook/wells-fargo-fined-for-years-of-harm-to-customers.html.
 Id.; Seeking Accountability for Wells Fargo Sham Accounts, N.Y. Times (Sept. 26, 2016), http://www.nytimes.com/2016/09/27/opinion/seeking-accountability-for-wells-fargo-sham-accounts.html.
 Wall Street Reform: The Dodd-Frank Act, The White House, https://www.whitehouse.gov/economy/middle-class/dodd-frank-wall-street-reform (last visited Oct. 17, 2016).
 Taku Dzimwasha, 20 global banks have paid $235bn in fines since the 2008 financial crisis, I.B. Times (May 24, 2015, 17:54 BST), http://www.ibtimes.co.uk/20-global-banks-have-paid-235bn-fines-since-2008-financial-crisis-1502794.
 Katharina Bart, Tom Miles & Aruna Viswanathan, Reuters (Dec. 19, 2012, 6:49 PM), http://www.reuters.com/article/us-ubs-libor-idUSBRE8BI00020121219. Libor refers to the London Inter-Bank Lending Rate, and is a global benchmark interest rate used in finance. Libor: What is it and why does it matter?, BBC (Aug. 3, 2015), http://www.bbc.com/news/business-19199683.
 Deutsche Bank Says DoJ Wants It to Pay $14 Billion to Settle Mortgages Case, Reuters (Sept. 16, 2016, 4:05 AM), http://fortune.com/2016/09/16/deutsche-bank-doj-mortgages-case/.
 Tom Schoenberg, Hugh Son & David McLaughlin, BofA to Pay$16.7 Billion to End U.S. Mortgages Probe, Bloomberg (Aug. 21, 2014, 9:11 AM), http://www.bloomberg.com/news/articles/2014-08-21/bofa-agrees-to-pay-16-65-billion-to-end-u-s-mortgage-probes.
 Elizabeth Warren, Rigged Justice: 2016 – How Weak Enforcement Lets Corporate Offenders Off Easy, Office of Sen. Elizabeth Warren (Jan. 2016), http://www.warren.senate.gov/files/documents/Rigged_Justice_2016.pdf.
 Deutsche Bank Says DoJ Wants It to Pay $14 Billion to Settle Mortgages Case, Fortune (Sept. 16, 2016, 4:05 AM), http://fortune.com/2016/09/16/deutsche-bank-doj-mortgages-case/.
 Antoine Gara, Deutsche Bank Shares Sink On $14 Billion DoJ Mortgage Settlement Standoff, Forbes (Sept. 16, 2016, 11:17 AM), http://www.forbes.com/sites/antoinegara/2016/09/16/deutsche-bank-shares-sink-on-14-billion-doj-mortgage-settlement-standoff/#2cd31b0e75f6.
 Memorandum from Eric H. Holder, Jr., Deputy Att’y Gen., to Heads of Dep’t Components and U.S. Attorneys, Bringing Criminal Charges Against Corporations 1 (June 16, 1999) [hereinafter Holder Memo], http://www.justice.gov/sites/default/files/criminal-fraud/legacy/2010/04/11/charging-corps.PDF.
 Matt Apuzzo & Ben Protess, Justice Department Sets Sights on Wall Street Executives, N.Y. Times (Sept. 9, 2015), http://www.nytimes.com/2015/09/10/us/politics/new-justice-dept-rules-aimed-at-prosecuting-corporate-executives.html.
 Ted Kaufman, Why DOJ Deemed Bank Execs Too Big To Jail, Forbes (Jul. 29, 2013, 09:30 AM), http://www.forbes.com/sites/tedkaufman/2013/07/29/why-doj-deemed-bank-execs-too-big-to-jail/#5e5f962e3772.
 See Jesse Eisinger, Why Only One Top Banker Went to Jail for the Financial Crisis, N.Y. Times (Apr. 30, 2014), http://www.nytimes.com/2014/05/04/magazine/only-one-top-banker-jail-financial-crisis.html; William D. Cohan, How Wall Street’s Bankers Stayed Out of Jail, The Atlantic (Sept. 2015), http://www.theatlantic.com/magazine/archive/2015/09/how-wall-streets-bankers-stayed-out-of-jail/399368/; cf. Chris Isidore, 35 bankers were sent to prison for financial crisis crimes, CNN (Apr. 28, 2016, 6:53 AM), http://money.cnn.com/2016/04/28/news/companies/bankers-prison/.
 Brandon L. Garrett, The Rise of Bank Prosecutions, 126 Yale L.J. F. 33 (2016), http://www.yalelawjournal.org/forum/the-rise-of-bank-prosecutions.
 Id.; see Brandon L. Garrett, Too Big to Jail: How Prosecutors Compromise with Corporations ch. 1 (2014); see also Brandon L. Garrett, The Corporate Criminal as Scapegoat, 101 Va. L. Rev. 1789 (2015).
 Garrett, supra note 18, at 1802, 1810-11.
 Memorandum from Sally Q. Yates, Deputy Att’y Gen., Individual Accountability for Corporate Wrongdoing 1-2 (Sept. 9, 2015) [hereinafter Yates Memo], http://www.justice.gov/dag/file/769036/download;
 Holder Memo, supra note 14, at 2.
 Apuzzo & Protess, supra note 15.
 Miriam Baer, The Stick that Never Was: Parsing the Yates Memo and
 Joshua Green, Warren: Next Administration Should Probe, Maybe Jail Wall Street Bankers, Bloomberg (Sept. 15, 2016, 12:00 AM), http://www.bloomberg.com/politics/articles/2016-09-15/elizabeth-warren.
 Letter from Elizabeth Warren, U.S. Sen., to Hon. Michael E. Horowitz, Dep’t of Justice Inspector 14 (Sept. 15, 2016), http://www.warren.senate.gov/files/documents/2016-9-15_Referral_DOJ_IG_letter.pdf.
 Green, supra note 25.
 Id.; About the FCIC at Stanford Law School, Fin. Crisis Inquiry Comm’n, https://fcic.law.stanford.edu/about (last visited Oct. 9, 2016).
 Green, supra note 25.
 Kate Berry, Wells Fargo Is Test Case for DOJ Actions Against Individuals, Am. Banker (Sept. 15, 2016), http://www.castconsultants.com/wp-content/uploads/2016/09/Wells-Fargo-Is-Test-Case-for-DOJ-Actions-Against-Individuals-_-American-Banker.pdf.
 Ben Protess, Matthew Goldstein & Michael Corkery, Wells Fargo Subpoenaed in Sham Account Case, N.Y. Times (Sept. 14, 2016), http://www.nytimes.com/2016/09/15/business/dealbook/wells-fargo-investigation.html; Berry, supra note 30.
 Berry, supra note 30.
 Stacy Cowley, Wells Fargo’s Reaction to Scandal Fails to Satisfy Angry Lawmakers, N.Y. Times (Sept. 29, 2016), http://www.nytimes.com/2016/09/30/business/dealbook/wells-fargo-ceo-john-stumpf-house-hearing.html?action=click&contentCollection=JobMarket&module=RelatedCoverage®ion=Marginalia&pgtype=article&mtrref=www.nytimes.com.
 Stacy Cowley, Wells Fargo Workers Claim Retaliation for Playing by the Rules, N.Y. Times (Sept. 26, 2016), http://www.nytimes.com/2016/09/27/business/dealbook/wells-fargo-workers-claim-retaliation-for-playing-by-the-rules.html.
 Emily Glazer, Wells Fargo CEO John Stumpf Steps Down, Wall St. J. (Oct. 12, 2016, 8:12 PM), http://www.wsj.com/articles/wells-fargo-ceo-stumpf-to-retire-1476306019.
 Too Big to Jail: Inside the Obama Justice Department’s Decision Not to Hold Wall Street Accountable, H.R. Rep., 114th Cong., 2d Sess. 33 (July 11, 2016), http://financialservices.house.gov/uploadedfiles/07072016_oi_tbtj_sr.pdf.