Former Wells Fargo FX trading head sues for wrongful termination

Simon Fowles, a former head of foreign exchange trading at Wells Fargo, is suing the bank for wrongful termination, claiming his bosses fired him last October after he told them of his plans to notify regulators of an allegedly unethical compensation scheme.

Fowles joined Wells Fargo in 1996, was promoted to head of FX trading in San Francisco, California two years later, and also served as executive vice-president. He managed a team of 65 traders globally.

The senior manager was one of four FX executives fired in late 2017 after federal investigators began looking into the bank’s currency practices. The others were Bob Gotelli, executive vice-president and head of global sales for corporate FX; Jed Guenther, a managing director, focused on FX sales management; and Michael Schaufler, co-head of FX spot and emerging market trading.

Fowles is now seeking back pay and benefits, attorney fees and damages that will deter Wells Fargo and others from acting in similar fashion.

“For several years preceding his termination, [Fowles] made repeated, strident, clear and unambiguous complaints to many members of the Wells Fargo’s upper level management team about the significant risks of illegal activity, mail and wire fraud, unlawful profiteering, and regulatory violations that would inevitably and certainly result from the compensation plans used by Wells Fargo to compensate members of the FX sales and trading teams,” reads a complaint filed in the Superior Court of California in San Francisco on April 11.

Wells Fargo has denied Fowles’s accusations.

“The bank strongly denies the allegations in the complaint and will defend itself vigorously in court,” says Jessica Ong, a spokeswoman at Wells Fargo.

Cash pay-out

According to the complaint, Wells Fargo used a bi-annual cash pay-out programme to incentive its FX trading and sales teams. Currency specialists were rewarded for maximising revenue opportunities on all FX transaction from small retail trades to billion-dollar deals.

In 2012, Fowles removed the trading team from the payment programme and told management of the legal and ethical implications the arrangement would cause since it encouraged FX specialists to pay more attention to revenue rather than customers’ interests. The former trader also said the scheme encouraged the professionals to act unethically by increasing spreads on customers at year-end in order to qualify for the bonus.

In August 2014, the San Francisco sales team brought a $4 billion transaction from Burger King to buy Canadian dollars to assist its $12.5 billion acquisition of restaurant chain Tim Hortons. It was the largest deal ever handled by both Wells Fargo’s sales and FX team, according to the document. The deal was to quote the customer an at-worse price on the entire transaction with a 50-50 split on any improvement above it so as to ensure a firm price.

The finalised average rate was better than the at-worse quote, and trading transferred $1.475 million in hard revenue to the FX sales team, which the complaint states Fowles assumed was split with the customer. Burger King’s transaction brought in between $7 million and $8 million in revenue for Wells Fargo group – a majority of which came from a pre-agreed credit spread as the trade had a forward settlement date portion. Senior managers knew about the breakdown of how the revenue was generated, the complaint states, and the both them and Burger King were happy with the rates received.

Regulators come knocking

Wells Fargo learned from Burger King in July 2016 that the Department of Justice was inquiring about the $4 billion USD/CAD transaction the bank had executed a few years earlier. The DoJ was concerned that the bank may have reaped more revenue than it actually shared with its chain restaurant.

Fowles was called into a meeting in August 2016 with internal and external council to discuss the Burger King execution, and in December 2016, he allegedly urged Wardell-Smith again to move away from the cash pay-out since. At this point, Wells Fargo was in the midst of a scandal involving thousands of employees who created millions of unauthorized bank and credit card accounts in a bid to charge unsuspecting customer fees that boosted their sales figures.

“In mid-September 2017, [Fowles] made it very clear to upper management that he intended to inform federal regulators of the significant ethical, legal and regulatory issues he had noted and been complaining about concerning the FX sales teams’ use of the cash-based incentive programme,” the complaint reads.

That same month, Fowles was called into an “informal meeting” with Walter Dolhare, head of Wells Fargo Securities, Bob Mulligan, head of Wells Fargo Securities compliance, and Carrie Baker, head of human resources for Wells Fargo Securities, to again share his recollection of the Burger King transaction, the document states.

There he allegedly told them that “greed due to the ridiculous incentive compensation plan that the FX sales team were (and still are) under” caused them to focus on revenue instead of providing the customer with the execution rate based on the agreed 50/50 split.

In October 2017, Fowles learned that the Office of the Comptroller of the Currency was going to examine the FX sales and trading group between October 30 and November 27 of that year, specifically focusing on front-office supervision as well as the compensation incentive plans for both teams.

On October 16, a month after he alleged told his bosses he would speak up about the compensation plan – and days before he was to talk with regulators – Fowles was terminated with immediate effect for violating a Wells Fargo policy and for being a part of conversation about setting the rate related to the Burger King deal, according to court documents.

Fowles’s lawsuit is the latest in a number of problems that have plagued Wells Fargo in recent years. The bank paid a $185 million fine in relation to the fake accounts scandal.