A recent Wall Street Journal article announced new winners benefiting from the last financial crisis- whistle blowers! Four whistleblowers will be receiving more than $170 million for helping investigators obtain a $16.6 billion penalty against Bank of America for inflating the value of its mortgage practices.
According to Richard Moberly, law professor at the University of Nebraska, Lincoln, who researches whistleblower cases, the size of the payments “is unprecedented in the financial sector.”
The article reminded me of my post questioning former attorney General Eric Holder encouraging whistleblowers to come forward to the Department of Justice with evidence of fraud. Holder had said the D.O.J. was committed to prosecuting errant bank and mortgage officials, but it remains a difficult task and the help of whistleblowers was and is needed to make charges stick.
Holder claimed that “in the last six years, he and his colleagues have been singularly aggressive in pursuing cases and bringing charges where evidence warrants it.” Yet Bea Edwards, Executive Director of the Government Accountability Project, the nation’s leading whistleblower protection organization, advised concerned individuals to look closer: “There’s a loophole. The D.O.J. brings criminal charges where there is enough evidence. If there isn’t enough evidence per se, then there are no charges.”
Banks so far have been hit with civil suits for their financial malfeasance, not criminal charges. And so I questioned Holder’s statement and doubted the D.O.J.’s efficacy in pursuing whistleblowers’ help and actually prosecuting wrong doers, which is what I believe needs to happen. And even Federal Judge Jed Rakoff publicly scolded the D.O.J. saying “…not a single high-level [banking] executive has been successfully prosecuted in connection with the recent financial crisis.” Also, as the study below cites, there are many others who question the outcomes as well.
According to an abstract titled The Impact of Whistleblowers on Financial Misrepresentation Enforcement Actions, “Whistleblowers are ostensibly a valuable resource to regulators investigating securities violations, but whether whistleblowers have any measurable impact on the outcomes of enforcement actions is unclear.” Although some whistleblowers do receive awards (and publicity), the vast majority are retaliated against and never heard from.
The study said companies wind up paying more when a whistleblower is involved in an enforcement action. In fact a typical company was hit with a penalty that was on average 63% higher when a whistleblower was involved than when there was no whistleblower.
So, I’m still in doubt. The operative word is penalty, not the criminal charges that perhaps investigations should lead to. And I’m reminded of the old adage about an ounce of prevention.
My question is why not prevent fraud, corruption, lying and cheating – stop it from ever happening? Perhaps if more companies implemented guiding principles, encouraged right behavior, rewarded employees more fully for the work they contribute and engaged their employees with purpose and passion, whistle blowers would be out of business.
Our society has shown there are more ethical companies like Penn Mutual (a recent client who, in fact, has guiding principles that have kept them in business for more than a century), than there are unethical companies like Enron, WorldCom, and Bank of America. From my own experience of being a whistleblower, especially one who gained nothing except being discharged of his duties and work, whistleblowing is not a fun job.
I’m not being overly optimistic; there are steps that can be implemented, guiding principles that can be applied. Ethics can be followed that are not hundreds of pages in length – so long that one loses one’s place trying to follow them.
I’ll be talking more about them in coming weeks so please join me.
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.
