Golden parachute? Ex-Wells Fargo exec sues Fed over pay

Al Drago/Bloomberg

The former head of anti-money-laundering compliance at Wells Fargo is suing the Federal Reserve after the central bank denied him certain deferred compensation — setting up a test case over how much leeway bank regulators have in enforcing executive compensation rules.

Jim Richards, who retired from Wells Fargo in 2018, alleges that the Fed is rewriting the legal definition of a "golden parachute" to include what his lawsuit characterizes as "golden handcuffs."

The compensation agreement between Richards and the San Francisco-based bank "flatly states" that the restricted stock rights in question were intended to be "an incentive for Richards to continue working at Wells Fargo," the lawsuit states. "This is the exact opposite of a 'golden parachute' payment."

Spokespeople for the Fed and Wells Fargo declined to comment on the suit, which was filed Monday in federal court.

Since the financial crisis of 2008-2009, executive compensation for bankers — and specifically golden parachutes — has been a politically charged topic. In the wake of Wells Fargo's fake-accounts scandal, the bank's board clawed back tens of millions of dollars in compensation from top executives.

The Fed's decision to deny Richards the stock payments followed Wells Fargo's refusal to send a certification letter to the central bank affirming that Richards had not engaged in any misconduct that would disqualify him from receiving the compensation.

Wells Fargo recommended that Richards send his own self-certification letter, and he subsequently did so, according to the suit. The $1.9 trillion-asset bank also canceled certain earlier restricted stock rights that Richards had held after his departure.

Richards' lawsuit calls the bank's refusal to send the certification letter "outlandish," while also providing some context for the bank's decision.

In 2015, while Richards was working as Wells Fargo's Bank Secrecy Act officer and serving as the head of its financial crimes risk management group, the bank's wholesale unit was hit with a regulatory consent order.

The enforcement action, which was eventually lifted in 2021, ordered improvements in the wholesale unit's Bank Secrecy Act and anti-money-laundering compliance.

Richards alleges that not only did he not engage in misconduct, but he alerted the bank's chief risk officer and its board of directors to the problems in the wholesale unit, while urging them to take action.

In addition, the lawsuit states that though the financial crimes risk management group did not have operational authority over the wholesale unit, it "repeatedly tried to provide significant material assistance" and that federal regulators specifically stated multiple times that the Richards-led group was not at fault for the wholesale unit's problems.

In fact, Richards "had been praised by the bank and by the federal regulators for his efforts with respect to Wholesale," according to his complaint.

Richards voluntarily retired from the bank in May 2018, the lawsuit states. Under his agreement with Wells Fargo, he would have lost his right to vest in the restricted stock if his employment was terminated, but an exception was made for voluntary retirement.

According to Richards' lawsuit, the Fed cited multiple reasons for its decision to deny him the deferred compensation. One of them was the existence of "antagonism" between Richards and the leadership of the bank's wholesale unit that "undercut the remediation effort."

Richards maintains that the Fed mischaracterizes what happens. "The record is clear that the 'antagonism and clashes' referred to by the [Federal Reserve] Board were the result of Richards having objected each time Wholesale attempted to mislead and/or lie" to its regulators "about the remediation progress that Wholesale was supposedly making," the complaint states.

The lawsuit also argues that the Fed gave undue credence to Wells Fargo's decision not to provide a certification letter on behalf of Richards — since the bank allegedly did not provide a rationale for its position.

"If the [Federal Reserve] Board's denial letter had listed any findings by the bank of wrongdoing," the lawsuit states, "or any explanation which the bank gave to the Board as to why the bank did not provide plaintiff a certification letter, the Board's position would be more defensible."

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The fate of Richards' deferred compensation has been in the Fed's hands because of regulations stating that banks that are in "troubled condition" cannot make post-employment "golden parachute payments" without regulators' permission.

Richards alleges that the Fed's decision in his case was arbitrary and capricious, in violation of the Administrative Procedure Act. He's asking a magistrate judge to issue an order directing the Fed to approve the deferred compensation.

Richards is not the only former Wells Fargo executive to go to court over lost compensation. In 2023, former CEO Tim Sloan sued the bank over its cancellation of millions of dollars of equity grants and bonus pay.

Wells Fargo has argued that Sloan's complaint should be dismissed, but a jury trial has been scheduled for Sept. 22 in San Francisco County Superior Court.