Sen. Elizabeth Warren (D, Mass.) is urging the Federal Reserve to remove a dozen Wells Fargo board directors who served during the bank's sales-practices scandal, according to a letter reviewed by The Wall Street Journal.
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In the letter sent to Federal Reserve Chairwoman Janet Yellen on Monday, Sen. Warren urged the Fed to invoke its authority under a rule that allows it to remove certain people associated with depository institutions under specific circumstances.
Sen. Warren pointed to 12 directors who served on the San Francisco bank's board between May 2011 and July 2015, a period in which Wells Fargo fired 5,300 employees for the bad behavior. The bank settled with two regulators and a city official in September for $185 million over the practices. Its chief executive later abruptly retired and the bank continues to face state and federal investigations, which it has said it is cooperating with.
A Wells Fargo spokeswoman said the board and its management team have "taken many actions in response to its retail sales practices issues, including changes in senior leadership, executive accountability actions and numerous steps to ensure we make things right with any customer affected by unacceptable sales practices." She added that the work is ongoing.
The bank's board has also endured harsh criticism and faced opposition during a contentious shareholder meeting in late April. Several directors were re-elected to their roles by just a slim margin.
Sen. Warren has been a sharp critic of Wells Fargo's management and handling of the sales-practices scandal. When former CEO John Stumpf appeared before the Senate Banking Committee to explain the problems, Sen. Warren lambasted him and said he should resign and be criminally investigated.
In her eight-page letter to the Fed, Sen. Warren wrote that the sales-practices scandal "revealed severe problems with the bank's risk management practices----problems that justify the Federal Reserve's removal of all responsible Board members."
In the wake of the scandal, Wells Fargo's board conducted an investigation of the bank, but largely didn't fault directors. On a call with media after the report was disclosed in April, Chairman Stephen Sanger said "the findings of the investigation showed the board took the appropriate actions with the information it had, when it had it" and that it hired a law firm to do the investigation to get "an independent and objective assessment of our performance."
Sen. Warren's letter cited the Fed's ability to remove board members including if they "engaged or participated in any unsafe or unsound practice" that caused certain depository institutions to "suffer financial loss" and that demonstrated "continuing disregard...for the safety and soundness" of the institution.
"I urge the Federal Reserve to use the tools Congress has given it to remove the responsible Board members and protect the continued safety and soundness of one of the country's largest banks," the senator's letter said.
The 12 board directors mentioned in the letter are: John D. Baker II, John S. Chen, Lloyd H. Dean, Elizabeth A. Duke, Enrique Hernandez, Jr., Donald M. James, Cynthia H. Milligan, Federico F. Pena, James H. Quigley, Stephen W. Sanger, Susan G. Swenson, and Suzanne M. Vautrinot.
Among those directors, Ms. Duke, who is now the board's vice chair, is a former Fed governor.
Sen. Warren wrote to the Fed that the board "failed to create an adequate risk management framework that would have alerted it to systemic problems with retail sales practices. It also caused long-lasting reputational damage to the bank that has eroded the bank's customer base."
The board's own report about the sales scandal, according to the letter, showed its "continuing disregard" for the bank's safety and soundness and failure to seriously address the sales-practices issues despite years of concerns.
The board's April report largely placed blame on Mr. Stumpf and former retail-banking head Carrie Tolstedt. The board clawed back an additional $75 million in compensation from them both.
The company was slow to stamp out the issues, the report said, in part because its decentralized structure gave Ms. Tolstedt too much power and officials from other units, such as risk management, human resources and legal, either couldn't connect the dots on problems or weren't powerful enough to do anything about it.
In late 2015, board members, including then-lead independent director Mr. Sanger, pushed Mr. Stumpf to remove Ms. Tolstedt from her role. But Mr. Stumpf declined, saying that Ms. Tolstedt, while at times controlling, was "the best banker in America," the report said.
The report also highlighted how the bank's push to boost revenue and profit trickled down to thousands of employees who felt pressured to meet unrealistic sales goals.
Write to Emily Glazer at email@example.com
(END) Dow Jones Newswires