Michael Nagle/Bloomberg
Carrie Tolstedt, a former head of retail banking at Wells Fargo, should serve one year in prison for deliberately withholding from regulators information about the bank’s phony-accounts scandal, prosecutors said.
In a new court filing — filed two weeks ahead of Tolstedt’s sentencing hearing — attorneys at the U.S. Department of Justice argued that serving 12 months in prison, followed by 12 months of probation, is an appropriate punishment. Tolstedt, who retired from Wells Fargo seven years ago, pleaded guilty earlier this year to a criminal charge of obstructing a bank examination.
The recommended 12-month sentence, which was reported earlier by Bloomberg News, is harsher than the recommendation of the U.S. Probation Office, which advises federal courts based on U.S. Sentencing Commission guidelines. The Probation Office suggested that Tolstedt should serve three years of probation.
Imprisonment for 12 months is a better option because it reflects the seriousness of the crime, prosecutors argued in their Sept. 1 sentencing memo. They also contended that incarceration would deter other would-be white-collar criminals and promote respect for the law.
“The perception that white-collar criminals, particularly well-paid, well-educated executives … often get no more than a ‘slap on the wrist’ is corrosive to the system’s legitimacy,” the prosecutors’ memo said. A year of prison time “would send the message that highly compensated corporate executives … are held accountable for their actions as much as any other member of society.”
Tolstedt is scheduled to be sentenced in Los Angeles on Sept. 15 by U.S. District Judge Josephine Staton. Attorneys for Tolstedt submitted their own sentencing recommendation on Friday, but the document was filed under seal.
Matthew Umhofer, an attorney for Tolstedt, did not respond Tuesday to American Banker’s request for comment.
The deal that Tolstedt reached with the Justice Department in March, in which she agreed to plead guilty to a single felony charge of obstructing a bank examination, called for a prison sentence of up to 16 months. Tolstedt also agreed to a ban from the banking industry, plus civil money penalties of more than $21 million, to resolve certain civil charges she was facing.
Before Tolstedt left Wells Fargo, she oversaw the banking giant’s retail division. As part of that role, she was in charge of sales goals for branch employees.
Some employees felt so pressured to meet their sales goals that they cheated by opening fake customer accounts. As workers sought to game the system, millions of often unused accounts were opened over the course of many years, according to prosecutors.
The Department of Justice alleges that Tolstedt downplayed the level and severity of employees’ misconduct in communications with the Office of the Comptroller of the Currency. She also withheld information about how many bank employees were fired or resigned pending investigation for sales-related misconduct, according to prosecutors.
“As head of the community bank, [Tolstedt] was uniquely positioned to enable the OCC to do its job,” prosecutors wrote in the sentencing memo. “She did the opposite. [Tolstedt] minimized the scope of the misconduct, falsely characterizing it as the isolated misbehavior of a few bad apples.”
As to the Probation Office’s recommendation, the Justice Department said that three years of probation isn’t enough.
“Such a sentence may reflect the fact that [Tolstedt] poses no further danger to society, but it does not account for the other statutory sentencing factors,” the memo said. “A one-year custodial sentence strikes the right balance.”
Tolstedt is the only former Wells Fargo executive to be charged criminally in connection with the phony-accounts scandal.
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