Report: Former Wells Fargo CEO John Stumpf learned about fraud years ago

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When I think about John Stumpf, the now-disgraced former chairman and CEO of Wells Fargo(NYSE: WFC), I'm reminded of those stories you see on TV about the guy-next-door who had been living a secret life for years.

"He seemed so normal," neighbors would say.

"He always showed up to work on time and did his job," co-workers would add.

But then, for one reason or another, everything would come crashing down. Something would cause someone to peek behind the thin veneer of respectability and discover the truth.

In Ken Lay's case, it was the recession following Sept. 11, 2001 that revealed the inner machinations at Enron.

In Bernie Madoff's case, it was the financial crisis that caused his multibillion dollar Ponzi scheme to collapse.

And in John Stumpf's case, it was a fake-account scandal in which low-level employees were, if a growing multitude of allegations are to be believed, all but forced to commit fraud in order to keep their jobs and boost Wells Fargo's performance and thereby Stumpf's voluptuous paycheck -- he earned $20 million a year.

Photos from Stumpf's day at Congress:

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Elizabeth Warren questions Wells Fargo CEO John Stumpf
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Elizabeth Warren questions Wells Fargo CEO John Stumpf
Wells Fargo CEO John Stumpf arrives to testify before a Senate Banking Committee hearing on the firm's sales practices on Capitol Hill in Washington, U.S., September 20, 2016. REUTERS/Gary Cameron
Wells Fargo Chief Executive Officer John Stumpf is sworn in on Capitol Hill in Washington, Tuesday, Sept. 20, 2016, prior to testifying before Senate Banking Committee. Strumpf said he's committed to addressing "unethical sales practices" at the bank as he speaks before a congressional panel about allegations that employees opened millions of unauthorized accounts to meet aggressive sales targets. (AP Photo/Susan Walsh)
Wells Fargo Chief Executive Officer John Stumpf prepares to testify on Capitol Hill in Washington, Tuesday, Sept. 20, 2016, before Senate Banking Committee. Strumpf was called before the committee for betraying customers' trust in a scandal over allegations that employees opened millions of unauthorized accounts to meet aggressive sales targets. (AP Photo/Susan Walsh)
U.S. Senator Elizabeth Warren (D-MA) questions Wells Fargo CEO John Stumpf (not pictured) during his testimony before a Senate Banking Committee hearing on the firm's sales practices on Capitol Hill in Washington, U.S., September 20, 2016. REUTERS/Gary Cameron
US Senator Elizabeth Warren, Democrat of Massachusetts, questions John Stumpf, chairman and CEO of Wells Fargo, as he testifies about the unauthorized opening of accounts by Wells Fargo during a Senate Banking, Housing and Urban Affairs Committee hearing on Capitol Hill in Washington, DC, September 20, 2016. / AFP / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
Senator Elizabeth Warren, a Democrat from Massachusetts, left, speaks with Senator Joe Donnelly, a Democrat from Indiana, before John Stumpf, chief executive officer of Wells Fargo & Co., not pictured, testifies in front of the Senate Committee on Banking, Housing, and Urban Affairs in Washington, D.C., U.S., on Tuesday, Sept. 20, 2016. Stumpf, struggling to quell public rancor after the bank's employees opened unauthorized accounts for legions of customers, said the company has expanded its review of the matter to include 2009 and 2010. Photographer: Pete Marovich/Bloomberg via Getty Images
US Senator Elizabeth Warren, Democrat of Massachusetts, questions John Stumpf, chairman and CEO of Wells Fargo, as he testifies about the unauthorized opening of accounts by Wells Fargo during a Senate Banking, Housing and Urban Affairs Committee hearing on Capitol Hill in Washington, DC, September 20, 2016. / AFP / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
US Senator Elizabeth Warren, Democrat of Massachusetts, holds up copies of Wells Fargo earnings call transcripts as she questions John Stumpf, chairman and CEO of Wells Fargo, as he testifies about the unauthorized opening of accounts by Wells Fargo during a Senate Banking, Housing and Urban Affairs Committee hearing on Capitol Hill in Washington, DC, September 20, 2016. / AFP / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
UNITED STATES - SEPTEMBER 20: Sens. Elizabeth Warren, D-Mass., and Joe Donnelly, D-Ind., talk before a Senate Banking, Housing, and Urban Affairs hearing in Dirksen on unauthorized accounts opened under customers 'names at Wells Fargo featuring testimony by CEO John Stumpf, September 20, 2016. (Photo By Tom Williams/CQ Roll Call)
UNITED STATES - SEPTEMBER 20: From left, Sens. Elizabeth Warren, D-Mass., Heidi Heitkamp, D-N.D., and Joe Donnelly, D-Ind., attend a Senate Banking, Housing, and Urban Affairs hearing in Dirksen Building on unauthorized accounts opened under customers' names at Wells Fargo featuring testimony by CEO John Stumpf, September 20, 2016. (Photo By Tom Williams/CQ Roll Call)
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You may think that comparing Stumpf to Lay and Madoff is hyperbolic, but I disagree.

Like them, he carefully cultivated an image of infallibility. He lambasted other banks for seeking growth for the sake of growth. And he loudly trumpeted Wells Fargo's Vision & Values which made, in hindsight, preposterous claims like:

The reason we wake up in the morning is to help our customers succeed financially and to satisfy their financial needs, and the result is that we make money. It's never the other way around.

Meanwhile, while analysts and commentators like me were distracted by Stumpf's diversionary tactics, thousands of the banks' employees were opening millions of fake accounts for customers. Stumpf claimed that the fraud went back to only 2011, but there's now clear evidence that it may have gone all the way back to 2005, if not to 1998.

All along the way, moreover, those employees who didn't feel comfortable committing fraud and who blew the whistle to Stumpf, the bank's "ethics" line, its human resources department, or to Wells Fargo's board of directors, were fired or intimidated into continuing the fraud.

"We were constantly told we would end up working for McDonald's," a former employee told the Los Angeles Times, which broke the story in Dec. 2013. Never mind the fact that McDonald's has never been caught intentionally defrauding millions of customers.

Another employee who refused her supervisors' demands to open fake accounts was told that she'd never be able to find another job at a bank ever again.

Wells Fargo sought to make this happen by filing a U5 with securities regulators, claiming that she "failed to perform job duties." According to bankers I've spoken to, a document like that should NEVER have been filed against a personal banker, who sells FDIC-insured banking products, not securities. (One banker I spoke to who has hiring and firing authority had never even heard of a U5 filing.)

Another 12-year veteran of the company who blew the whistle received a menacing letter from his superiors, threatening him that his employment was "at will" and under the "complete and arbitrary discretion" of his superiors. The letter concluded by saying "you will never be allowed back in the same office, sue us if you disagree."

He did, and he won the case.

And all along the way, Stumpf was getting letters and emails from these people. And he did nothing to stop it.

He did nothing to stop the abuse of customers.

And he did nothing to stop the abuse of his employees.

In this way, he was complicit in -- dare I say the leader of -- a conspiracy that not only defrauded millions of customers, many of whom were undoubtedly the most vulnerable members of our society such as octogenarians living on $1,100 a month, but also silenced those who tried to end the scam.

These people believed that alerting Stumpf would give them safe harbor from their immediate superiors who threatened and belittled them.

But Stumpf ignored them. He allowed his managerial goon squad to defame their reputations and attempt to destroy these peoples' abilities to earn a living for their families.

It's like a horror movie where the victim runs unwittingly into the arms of a seeming do-gooder, only to discover that they were now in the grasps of the perpetrator they were fleeing from.

But rest assured that Stumpf will not escape this with his reputation intact.

Speaking under oath, before Congress, Stumpf said that he didn't learn about the fraud until late 2013.

That's eight years after he purportedly began receiving emails and letters from whistleblowers. And it was nearly three years after Wells Fargo began cleaning house in its retail operations, firing 1,000 employees a year who, if the bank is to be believed (ha ha), were furthering the fraud, or who, seemingly just as likely, were fired because they refused to participate in it.

In short, it seems farfetched to think that Stumpf won't, at the very least, be indicted for lying to Congress. His claim that he didn't know about any of this until late 2013 is just patently absurd on its face.

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The 10 most valuable banks in America
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The 10 most valuable banks in America

1. JPMorganChase

Current worth: $2.47 Trillion  

Photo credit: Reuters

2. Bank of America

Current worth: $2.19 Trillion 

Photo credit: AP 

3. Wells Fargo

Current worth: $1.89 Trillion 

Photo credit: AP 

4. Citigroup

Current worth: $1.82 Trillion 

Photo credit: AP 

5. U.S. Bancorp 

Current worth: $438.5 Billion 

Photo credit: Reuters 

6. PNC Financial 

Current worth: $361.3 Billion 

Photo credit: Reuters 

7. Capital One

Current worth: $339.1 Billion 

Photo credit: Getty

8. BB&T 

Current worth: $221.9 Billion 

Photo credit: Getty

9. SunTrust Banks

Current worth: $199.1 Billion 

Photo credit: AP 

10. Fifth Third Bancorp

Current worth: $143.6 Billion 

Photo credit: AP 

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John Maxfield owns shares of Wells Fargo. The Motley Fool owns shares of and recommends Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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