I know I did the right thing, Mr. Eric Ben-Artzi told several newspapers this last week (FT and Bloomberg).
He writes, “I turned down a whistleblower award.” Former Deutsche Bank employee and whistleblower, Eric Ben-Artzi turned down a whistleblower award of $8.25 million. “I refuse to take my share,” he said. “Although I need the money now more than ever, I will not join the looting of the very people I was hired to protect. I never intended to turn a job in risk management into a crusade, but after suffering at the hands of Deutsche executives, I will not join them simply because I cannot beat them.”
He continues, “I request that my share of the award be given to Deutsche and its stakeholders and the award money clawed back from the bonuses paid to the Deutsche executives, especially the former top SEC attorneys.” Mr. Ben-Artzi says that the USD $55 million U.S. Securities and Exchange Commission (SEC) penalty which the award is based upon should have been paid by Deutsche executives.
A powerful gesture. One that hopefully will cause people to pay attention to the malfeasance underlying the whole 2008 financial debacle. My hat’s off to Mr. Ben-Artzi. I applaud his stance. Eric and I have had two long conversations about our parallel experiences with the SEC as both of us were represented by the Government Accountability Project. This week, more on both our experiences will be published by World Finance.
Mr. Ben-Artzi, who holds a PhD in mathematics from New York University, joined Deutsche as a vice president in the market risk department. Having worked in risk-modeling at other banks, including Goldman Sachs; he was looking for a more promising long-term position without the ethical situations he’d encountered at Goldman.
He was unaware that an internal investigation was taking place at Deutsche regarding the inflated value of the bank’s $220 billion portfolio of complex derivatives. The bank had failed to report billions of dollars in losses during the financial crisis which, if reported, would have led to their insolvency.
When his analysis suggested that something was awry, he met with Robert Rice, Deutsche’s top lawyer for compliance and regulatory affairs. Mr. Rice’s decision: that the conversation he and Mr. Ben-Artzi had were subject to attorney-client privilege and could not be disclosed. Mr. Ben-Artzi would not agree, was subsequently fired and eventually became one of three Deutsche Bank whistleblowers.
With their help, by 2015 the SEC had imposed a fine on Deutsche shareholders. Mr. Ben-Artzi asks why are the shareholders and not the managers being held responsible? He is disturbed, as he should be, that top executives retired with multi-million dollar bonuses, which were based on the misrepresentation of the bank’s balance sheet and consequently bank shareholders and employees – who lost their jobs and are the primary victims of this malfeasance.
He believes the fine should be paid by individual executives, not shareholders, and suggested the “revolving door” of senior personnel between the SEC and Germany’s largest bank had played a role in executives going unpunished; a statement with which I definitely concur.
So why didn’t the SEC go after Deutsche’s executives; those who profited from the debacle? Well, it’s not a new story. I concur with Mr. Ben-Artzi’s evaluation of the SEC revolving door, here and abroad.
For instance, Deutsche’s top lawyer, Robert Rice, the chief lawyer in charge of the internal investigations at Deutsche in 2011, was the SEC’s chief counsel in 2013. Robert Khuzami, Deutsche’s general counsel in North America went on to become head of the SEC’s enforcement division right after the financial crisis. Deutsche’s longtime general counsel, Richard Walker was once head of enforcement at SEC.
James Schurr, Chief Accountant at the SEC was once deputy managing partner over the auditors at Deloitte. By the way, Deloitte signed off on the books of Bear Sterns, Washington Mutual and Fannie Mae!, which I wrote about in an earlier post.
And don’t forget, Mary Jo White, Chair of the SEC the person who bears the final and ultimate responsibility for Deutsche’s fine, was a partner at Debevoise and Plimpton law firm, which had Deloitte as a client. White’s husband, another law firm partner, still has Deloitte as a client. Her relationship with Mr. Khuzami and Mr. Rice goes back twenty years!
The SEC is a revolving door for executives who are responsible for the 2008 financial debacle. The list is never ending. In Deutsche’s case, top SEC lawyers have held senior positions at the bank while investigations into malfeasance at Deutsche were in progress.
Is this a direct conflict of interest? Absolutely. Is it moral, ethical? I doubt it.
I applaud Mr. Ben–Artzi. What he has done is heroic. Perhaps it will also raise the visibility of the malfeasance and downright fraud that caused the crisis and help prevent future trespasses. His outspokenness may raise awareness with how critical understanding the financial crisis is and how devastating the next one will be unless we tackle the underlying issues.
Whistleblowing destroys careers, companies, and lives of the whistleblowers. Whistleblowing, most especially when a company’s reputation is damaged and shareholders bear the brunt of the resulting economic fallout, is more than just an indication of corporate malpractice. As I can personally witness, whistleblowing is often evidence that the company culture is seriously dysfunctional.
As a study in the International Journal of Business Communication points out, ”Employees are one of the key elements not only in fostering corporate reputation but also in preventing the loss of it.” The study which surveyed 889 employees in the U.S., the U.K. and Australia says that when things go wrong within a company there are almost always those who see it.
If the company fosters open communication and honest dissent, they will speak up. If dissension is discouraged and punished, they will not and the problems will probably escalate. The result, according to the study is when the wrongdoing is ultimately exposed, it “may cause tremendous damage to the organizational reputation.”
Healthy companies, ethical honest companies, encourage employees to speak up. Employees know who to go to. They do not fear retaliation.
The study says, “Organization’s with a reputation of honesty and integrity are likely to foster reputable formal leaders who uphold these values and ultimately facilitate employee dissent.”
Thank you, Mr. Ben-Artzi, for encouraging dissent.
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Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
