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Obama Administration Needs to Tap, Not Stiff-Arm, Wall Street Whistleblowers

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Bank of America
Bank of America
Saul Loeb/AFP/Getty Images

Testifying recently before a Senate panel, the U.S. Treasury Secretary Timothy Geithner hailed progress in "repairing and reforming" the financial sector since the passage of the Wall Street reform act two years ago. Geithner's sunny take sits awkwardly with the recent news that large international banks conspired to "fix" the LIBOR, the interbank loan rate, and that a leading American bank, J.P. Morgan Chase, lost almost $6 billion of dollars on botched trades – revelations that, as former Sen. Chris Dodd (of Dodd-Frank fame) wrote last month, "makes the strongest case ... for strong oversight of Wall Street."

But why, four years after large banks brought our economy to the brink of disaster, are we still reading about fraud, deceit, and reckless gambling by leading banks? The answer is partly that Wall Street has done everything in its considerable power to shred financial reform. But another big reason is that the Department of Justice has failed, inexplicably, to tap into the intelligence that financial whistleblowers like myself have tried to offer them.

As a Countrywide Home Loans executive in 2007, I supervised fraud investigators and reported to federal regulators and the company’s Board of Directors. That year, our investigations showed that commission-hungry Countrywide loan officers routinely forged borrowers’ signatures and doctored income and asset statements.

We opened many of these investigations on whistleblowers’ tips. Later I learned that many of those reporting or challenging fraudulent practices were transferred, demoted, harassed or fired in reprisal. To suppress whistleblowers and their concerns, Countrywide directed them to report their allegations to the suspect officials’ managers. It was a trap, and the system was rigged. Instead of taking action, the managers would then share the information with the suspects themselves, who would then hit back at the whistleblowers.

As the year wore on, I found various levels of management working to circumvent fraud detection and disguise document doctoring by high-producing loan officers. After assembling overwhelming evidence of fraud and retaliation against whistleblowers, I reported to Countrywide's internal auditors. But they must have been already working to conceal suspect lending from Bank of America (BofA), then in the process of buying out Countrywide.

At that point I became a target. Countrywide managers went after my job and reputation, intimidating witnesses and altering statements to produce derogatory – and entirely phony – "findings," which they passed on to BofA.

After acquiring Countrywide, in July 2008, BofA had its own motives for silencing me. It too had run afoul of regulators for failing to report fraud. As a senior executive at the former Countrywide, I was called to an interview with Treasury officials, which would only compound BofA’s problems since I would divulge that Countrywide had been intentionally underreporting fraud. BofA headed off that danger by terminating me in September 2008 claiming, on absolutely no evidence, that I was “unsuitable” for a management position.

Since then, I’ve found there were scores of whistleblowers inside Countrywide and then BofA. Trumped-up investigations were widely used to discredit us. The inner circle at both corporations operated like the mob:  company staff, including attorneys, often worked to silence employees, using weapons like blacklisting, hush money and confidentiality agreements. The upper echelons at BofA attempted to buy my silence with more than $200,000; I refused. Instead I chose what could become a decade-long battle to see the guilty held accountable.

I filed a whistleblower complaint with the Occupational Safety and Health Administration challenging the legality of my firing. In September 2011, OSHA ruled in my favor, ordering BofA to reinstate me and pay $930,000 in damages. (The decision is under appeal.)

I'm one of the few whistleblowers who survived somewhat intact. I've enjoyed the support of the Government Accountability Project, the nation's leading whistleblower protection and advocacy organization; was awarded the Nation Institute's 2012 Ridenhour Prize for Truth-Telling; and have received solid media coverage. Others haven’t been so lucky. One was former Countrywide executive and whistleblower Michael Winston, who was terminated for, among other things, refusing orders to misrepresent the company practices to Moody's, the rating agency. He won a wrongful-dismissal and retaliation case against Countrywide/BofA in 2011, but has been in personal and professional limbo as BofA appeals the decision in an attempt to escape accountability.

The federal government, meanwhile, has done little or nothing to protect whistleblowers. 

Over the last 10 years, the Department of Labor has found merit in less than 2% of over 1200 whistleblowers cases brought under the Sarbanes Oxley Act. The vast majority having been dismissed on legal technicalities without any investigation into the potential crimes being reported. Claims that should be resolved in 60 days are taking 2-4 years. The Obama administration plans to add thousands of investigators to enforce the health care reform law, but has added just 25 positions to investigate whistleblower claims.

Years after the onset of the financial crisis, caused in large part by deceptive lending, not one executive has been charged ­and imprisoned – either for fraud or obstruction of justice. For comparison, consider that prosecutors cleaning up the Savings and Loan scandal of the 1980s sent more than 800 bank officials to jail.

In 2010, I was interviewed by the Financial Crisis Inquiry Commission (FCIC) and offered evidence of systemic fraud. Other whistleblowers have done the same. The Commission's report concluded that fraudulent actions were systemic in certain financial institutions, and referred these practices to federal authorities. Not a single successful criminal prosecution has resulted. 

President Obama’s DOJ claims that prosecutors can’t indict and convict financial executives just because they behaved badly; greed, they say, is not a crime. Together with other FCIC witnesses, however, I alleged fraud, not greed, and that is a crime. The DOJ needs to investigate our allegations, and prosecutors could start by contacting whistleblowers like me. We have a lot to say, but many of us are gagged by our former employers unless subpoenaed. 

Today, millions of Americans are paying more on their mortgages than their homes are worth, and millions more are facing foreclosure. Meanwhile, those who cashed in while ordinary Americans lost their homes and their jobs remain at large, continuing both the crimes and the cover-up. Whistleblowers like me know who they are because we were there. We’re willing to talk. Why won’t the government listen?

Eileen Foster exposed systemic fraud at the nation’s largest mortgage provider, Countrywide Financial. She now works at a credit union in California.

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