Senator Elizabeth Warren has been a vocal critic of scandal-ridden bank Wells Fargo. And her blistering attacks arguably contributed to the ousters of CEO John Stumpf and his successor, Tim Sloan.
But now the 2020 Democratic presidential candidate is taking her war against corporate fraud to another level. She’s suggesting that executives at companies like Wells Fargo (WFC) should face jail time if they’re asleep at the wheel while big scandals happen on their watch.
Warren wrote in an op-ed for “The Washington Post” that she is planning to introduce a bill Wednesday that “expands criminal liability to any corporate executive who negligently oversees a giant company causing severe harm to U.S. families.”
That could mean that a CEO or other executive wouldn’t necessarily need to be found guilty of fraud or any criminal misdeed to potentially face jail time. It would be enough if they failed to actually know whether bad behavior was taking place.
“If top executives knew they would be hauled out in handcuffs for failing to reasonably oversee the companies they run, they would have a real incentive to better monitor their operations and snuff out any wrongdoing before it got out of hand,” Warren wrote.
She said she’s modeling the proposal on existing laws that impose criminal liability on executives if, because of their negligence, their companies sell drugs with improper labeling or pollute the air.
Warren called for similar consequences for executives at firms with more than $1 billion in annual sales that are found liable “for a civil violation affecting the health, safety, finances or personal data of 1 percent of the U.S. population or 1 percent of the population of any state.”
Wells Fargo declined to comment to CNN Business about Warren’s proposal.
The senator also promoted her “Ending Too Big to Jail Act,” a proposal introduced last year that calls for making it easier to hold the executives at big banks accountable for malfeasance. That act would require executives to certify that they investigated and found that “that no illegal conduct was occurring on their watch,” according to Warren.
While Warren did not mention any specific companies other than Wells Fargo, her call to crack down on companies responsible for data breaches could affect many big firms in light of a spate of cyberattacks and security lapses in recent years. Credit reporting agency Equifax (EFX) and discount retail giant Target (TGT) have been beset with such problems, for example.
It’s far from certain whether Warren’s new legislation would be able to get a majority of support in Congress. But her comments echo those from other prominent Democrats in the wake of the Wells Fargo scandal.
Heidi Heitkamp of North Dakota, a senator until early this year, said in an interview with CNBC in late 2017 that “I think somebody should go to jail” from Wells Fargo, and added that it should be “the person who is the most culpable for making the decisions.”
One legal expert said Warren’s proposal to put executives in prison seemed a bit excessive.
James Cox, a professor of corporate and securities law at the Duke University School of Law, told CNN Business that there’s a big difference between CEOs who are clueless, and those who are actually found guilty of fraud.
“I’m not sure if any of the recent corporate scandals were purposeful,” he said.
“This is different from Enron,” he added, referring to the infamous, scandalized corporation. “It was appropriate for Jeff Skilling to go to prison.”
Skilling, the former CEO of Enron who was convicted of securities and wire fraud, went to jail in 2006 and was released earlier this year.
Cox added that companies should have the ability to punish executives by forcing them to give back ill-gotten gains. That should serve as a sufficient threat.
“I like hitting people in the pocketbook,” Cox said. “Nobody should think that mismanagement justifies putting someone in the slammer. But salaries and bonuses should be recovered.”