By: Mark Glennon*
Illinois Treasurer Michael Frerichs today announced suspension of all State of Illinois business with Wells Fargo.
A number of Wells Fargo employees — a huge number even by Wall Street scandal standards — recently were found to have fraudulently opened millions of phony bank and credit card accounts and charged fees on those accounts.
Is Frerichs punishing the guilty? No, he is punishing Illinois taxpayers, blameless shareholders and employees who’ve done nothing wrong.
The Illinois Treasurer is an administrative office. Its purpose is simply to invest state cash on hand in the best interest of taxpayers. It engages in hundreds of billions of dollars of short term investment transactions each year with different banks. To select which banks, it uses a “best bid” system, as Frerichs called it.
With Wells Fargo’s suspension, “best bid” obviously won’t be good enough, and taxpayers will bear whatever additional cost comes from taking the second best bid on transactions where Wells Fargo would make a better offer. Until now, $30 billion annually has gone to Well Fargo as the best bid, according to Frerichs.
Frerichs was pounding his chest all over the media today about the suspension. He bragged on Twitter that he was about to go on CNBC. Evidently, he didn’t anticipate getting a smart questioner, Michelle Cabrera. She saw the issue of impact on taxpayers immediately. Watch the video to see Frerichs duck questions about that twice.
Then there are shareholders. The suspension probably will further hurt Wells Fargo stock. Shareholders have already lost a stunning $25 billion in market capitalization since the scandal broke. How does that compare to the damage done by the fraudsters? The fake accounts generated just $2.6 million in fees over a four-year period, according to CNBC. That’s about 1/1,000 of the loss to shareholders. And who are the shareholders who lost the $25 billion? You, me and millions of others with broad based stock funds in our IRA, 401(k) or whatever.
Finally, there are employees. 5,300 of them allegedly engaged in the fraud (though they’ve filed a lawsuit claiming they’ve been wronged). Add another 1,000 for good measure to include higher ups who might have been enablers or whatever. But Wells Fargo has 265,000 employees! Most of them had nothing to do with this. They’ll suffer with the bank, too.
Nobody is defending the fraudsters here. This is an epic scandal because of the flagrancy of the acts committed and the number of people allegedly involved. The point is simply that individual corporate wrongdoers should always be punished, not the corporation itself. Yes, the profit from any fraud should disgorged from the corporation, but beyond that it’s the bad guys only who should get smacked.
On that subject, Wells Fargo already fired the 5,300 employees. It has agreed to pay restitution of $200 million to regulators. It’s CEO will have $40 million in compensation clawed back. If you don’t think that’s punishment enough, fine, but direct the punishment towards the guilty.
*Mark Glennon is founder of WirePoints. Opinions expressed are his own.
late comment,
wasn’t progressive hero wonderkid–Dan Biss trying to pass some kind of ethics in investing State funds legislation? wonder where that went? Think it was dead on arrival.
So which companies will benefit from Frerichs decision and to whose PACs did the contribute?
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Using Frerichs logic taxpayers should be able to opt out of paying taxes to state government if a government employee is found guilty of a crime pertaining to their employment.
If the state doesn’t invest in companies whose employees commit wrongdoing, why should taxpayers invest in a state whose employees commit wrong doing.
Love it.