Stephen H Baum Leadership

“Are you with Wachovia (one of their slogans)?” If your answer to this question is “yes,” then you may be in danger of seeing your accounts drained by crooks. 

Wachovia enabled telemarketers to steal hundreds of millions of dollars from Wachovia customers, including the elderly.  

And Wachovia first denied knowledge of the scam while apparently continuing to solicit business from telemarketers known to defraud. 

Sadly this is part of an epidemic in the financial services industry of pursuing short-term profits at the expense of all else.  

A fire has been raging inside of Wachovia and rather than send in the fire department, executives appear to have fueled it. You think it could not happen to you? Think again. Even if you watched every penny every day you might not discover you are the victim until you’ve already been robbed. And then you may not get your money back for a very long time. 

The inside story is that — contrary to the denials — e-mails were discovered indicating that executives knew and made it a subject of conversation (“We are making a lot of money from them”). At the same time, the bank knowingly solicited business from companies accused of telemarketing crimes.  

The scam was not a secret. Customers complained and Federal authorities warned Wachovia. But Wachovia continued processing fraudulent transactions and continued to do business with crooks. Wachovia started internal “investigations,” but many were never completed nor were suspect accounts closed – (the bank put the burden on the customers). 

It is even alleged that Wachovia accepted unsigned checks from the accounts, often held by the elderly, then passed these along to other banks for remittance to the perpetrators. Perhaps as many as nine banks were involved. They must have found irresistible the wicked and perverse incentive of receiving a large fee from the fraud artists each time theft was discovered by a victim!

Only a widespread calamity, public exposure and lawsuits caused real action. Patrick L. Meehan, U.S. Attorney in Philadelphia said: “These types of crimes are possible only because the banks tolerate them.” And greater caution was clearly warranted — this is in the telemarketing industry, which has a long history of fraud. 

I cannot get out of my mind the words of Phil Simms, former quarterback of the New York Giants, whose rationale for accepting teams filming each other’s signals is: (1) there is no specific rule against this particular practice, (2) everybody does it. Equally memorable is NFL Commissioner Goodell’s destruction of the records from his investigation to avoid transparency. Evidently, these definitions of right and wrong have be adopted by many financial institutions. 

These ethical standards of sports celebrities are not what I want taught to my children and millions of other young sports fans. Wachovia’s ethical standards are not what I want taught to millions of aspiring future business leaders. 

Now, Wachovia may be the accomplice in this case, but they are far from alone. CEOs and their gun-slingers in the financial industries have once again put short-term profits first and the interests of customers and employees last. Those who profited most from selling sub-prime securities walked away with their huge severance pay. In their wake are foreclosures of decent homeowners and loss of income of thousands of employees who had nothing to do with the greedy overreaching. 

Only when a few CEOs and other senior executives are forced to disgorge millions of dollars in their severance package and suffer harsher justice will fear of getting caught affect leaders with a weak conscience.  Only then will such excesses and insouciance be viewed as the third rail. 

The spate of bad behavior is like El Nino, the weather phenomenon that wreaks havoc every several years. We’ve seen it before (think Long Term Capital which took many people’s savings when it went bust, the Savings & Loan crisis which did the same, etc.) and, when memory fades, we will see it again when greed and stupidity dwarf common sense and a bright line of right and wrong. 

And the only way this will happen is when there is an outcry from the public, serious investigative journalism by the media and prosecution by the justice system. The business owners and chief executives I know – who struggle to make their companies thrive but treasure their reputation for integrity – will be glad to see the guilty punished in public. 

For now, for me, I won’t let my being busy get in the way of checking every bank statement, every credit card bill and making a stink if I am one of the unlucky ones. Yes, including calling one of the TV action lines like the Hall of Shame on Fox TV. 

Note to self: I expected most banks to put their reputation and trust as first priority and have a more ethical culture. But banks are in business to make money and there is little proactive consumer protection. Caveat emptor, indeed!