How the Wells Fargo bandit beat the system
One thing for sure: L. Ben Lewis was conscientious. Even on vacation, the operations officer of one of four Beverly Hills branches of the Wells Fargo Bank would never let a week pass without dropping by the office for a few minutes to take care of odds and ends. It became clear last week why Lewis, 47, was so diligent. He was, according to Wells Fargo's chairman, Richard Cooley, nursing along one of the biggest bank frauds in history—a $21 million electronic rip-off that first came to light in January when embarrassed bank officials discovered their books to be far out of balance.
Initially, the bank had zeroed in on the records of a black boxing promoter named Harold Smith, 37, chairman of an organization called Muhammad Ali Professional Sports, or MAPS, which seemed to be at the center of the scam. But as the investigation went on it became clear that the real mastermind was Lewis, a black who, like Smith, was a board member of MAPS. When told during a Jan. 23 interrogation that auditors from the head office in San Francisco would see him after lunch, Lewis walked out and never returned.
Before he disappeared, Lewis told Wells Fargo investigators enough of what he had done to allow them to unravel the scheme. Meanwhile, separate investigations unearthed at least two other examples of banking abuse by Wells Fargo officials, raising questions about just how effective the bank's oversight practices are. So Cooley decided last week to assert that the nation's eleventh largest bank had not become an embezzler's playpen. He sent a letter to the bank's 15,000 employees, detailing what has been learned of the scam, and started talking to newsmen. Said he: "It appears that some of our policies were laxly controlled. But I guarantee you that there will be greater emphasis on operational controls and policies than there was."
Lewis had managed to circumvent the intent of a loosely enforced bank rule that requires employees to take at least two consecutive weeks of vacation per year so as to keep them out of the office and thereby discourage rip-offs of precisely the sort that Lewis had engineered. As explained by Cooley, Lewis' simple scheme was made possible by taking advantage of the amount of time—usually three to five days in California—that it takes for a check that is cashed in one branch of a bank to "clear" or be debited against the funds on deposit in another branch. No actual cash is shuffled between branches in the balancing process. Instead, accounts are made to tally by a method of computerized ledger balancing known as a "branch settlement account," a technique used by banks everywhere.
At Wells Fargo, five working days were allowed between the time that a withdrawal was made from one branch and the funds to cover it were debited in another. If within those five days the corresponding transactions did not balance, computers would sound an alarm.
At the heart of the settlement process is a funds transfer form that looks like an airline ticket and consists of a top page titled "credit," a carbon page and a bottom page titled "debit." According to Cooley, Lewis defeated the bank's fraud defenses by using the tickets to hoodwink Wells Fargo's computers.