Game changer: California investigating Wells Fargo for identity theft

Could lead to charges against former employees who opened fake accounts

A group of senators is already asking the Department of Justice to use a new policy to target individuals at Wells Fargo for corporate misconduct (and maybe even more) in the wake of the fake account scandal surrounding the bank.

The senators’ push for prosecution seems to focus mainly on the executives at Wells Fargo, including departed CEO John Stumpf, for their roles in setting up and overseeing an incentive program that led to the bank’s employees setting up millions of fake accounts in consumers’ names in order to get sales bonuses.

But the state of California is making a move that could lead to a whole new world of hurt for Wells Fargo, its current and former executives, and the 5,000 former employees who opened the fake accounts.

According to a report from the Los Angeles Times, which has been all over this scandal since the beginning, the California Department of Justice is launching an investigation into the conduct at Wells Fargo but plans to use a different tact than the Consumer Financial Protection Bureau or the Office of the Comptroller of the Currency, which together fined the bank $185 million.

The LA Times reports that California is now investigating Wells Fargo for criminal identity theft. That’s right – criminal identity theft.

From the LA Times report:

Harris’ office demanded the bank turn over a trove of information, including the identities of California customers who had unauthorized accounts opened in their names, information about fees related to those accounts, the names of the Wells Fargo employees who opened the accounts, the names of those employees’ managers and emails or other communication related to those accounts.

Her office is also requesting the same information about accounts opened by Wells Fargo workers in California for customers in other states.

The Harris referenced above is California Attorney General Kamala Harris, a name familiar to those in mortgage finance for her role in setting up a separate foreclosure settlement from the rest of the country in the wake of the crisis.

Here’s more on what Harris’ office is after, again courtesy of the LA Times:

Documents filed along with the search warrant argue that there is probable cause to believe Wells Fargo violated two sections of the state penal code — one outlawing certain types of impersonation, the other outlawing the unauthorized use of personal information. Both violations can be charged as felonies, punishable by imprisonment for more than a year.

It’s not clear whether Harris’ office is considering charges against individual bank workers, high-level bank executives or the bank itself. The investigation could lead to charges beyond the identity-theft allegations used to secure the search warrant.

It’s obviously too early to know what will become of the investigation, and anyone accused is innocent until proven guilty, but the fact that the bank’s former employees, the ones that set up the fake accounts, could end up facing criminal charges for identity theft could have seismic consequences.

For years, one of the biggest criticisms of the federal government’s response to the financial crisis was that the massive settlements with some of the nation’s largest banks for the actions that led to the recession did not go far enough.

Many wanted criminal prosecution. And now, finally, we may actually see some, albeit in a different way than many thought.

Again from the LA Times:

But identity theft has not been a central issue in the matter, and it’s noteworthy that it seems to be at the heart of Harris’ investigation, said Paul Stephens, policy director at the San Diego nonprofit Privacy Rights Clearinghouse.

“One wouldn’t typically think of a financial institution opening an account in the name of a customer as being an act of identity theft,” Stephens said. “It’s a creative way of looking at these activities and finding them unlawful under a statute that arguably could be prosecuted in state court.”

It should be noted that Harris is running for U.S. Senate in California, so some could argue that this move is politically motivated, especially considering how close it comes to the election.

Whether it's politically motivated or not, the tactic of seeking identity theft charges in an interesting one.

At its core, what is really different in what the Wells Fargo employees did than someone going through your trash, getting your personal information, and opening up a credit card in your name?

Aren’t they both identity theft?

Either way, it’s using someone else’s identity to open up a credit card or a bank account without their permission.

In some ways, it’s actually worse.

For better or worse, we put our trust in banks. We trust them with our sensitive personal information and with our money. Someone rifling through your trash and stealing your identity (or phishing it away from you online) is a violation.

But isn’t it worse to place your faith in a financial institution and its people just to see them take that faith and stomp all over it? We’ve seen that act before and our memories of the last time it happened are still very clear.

It’s an incredibly invasive and pervasive violation for the people who you trust with your money to use your information for their own enrichment – one that’s all too familiar.

When Stumpf testified before the Senate Banking Committee, Sen. Elizabeth Warren, D-Mass, made national headlines with her grilling of the bank’s now-former CEO.

During Warren’s time, she said that if a bank employee took money of out a cash drawer, that employee would be facing jail time.

She made the parallel between that hypothetical bank employee and Stumpf, who saw his stock in the bank rise by $200 million during the time this scandal was going on.

Warren asked Stumpf: "Have you resigned? Have you returned one nickel of the millions of dollars that you were paid while this scam was going on?"

Warren also called for Stumpf to face criminal prosecution by either the DOJ and/or the Securities and Exchange Commission for his role in the scandal.

Warren implied that Wells Fargo executives and employees may not be held personally responsible for their actions, but maybe that’s not the case anymore.

Now, it’s not like all 5,000 former employees are going to go to jail, nor should they, especially considering some of the working conditions they may have been subjected to.

But if they, or the bank’s executives, broke the law, they should be held responsible for that, just like someone who robs the bank or takes money out of the cash drawer.

And that is a game changer.

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