Tag Archives: whistleblower

Whistleblower Didn’t Live to See Landmark Allied Mortgage Verdict, Taxpayers Recover $92 Million

In May, 2011, Peter Belli filed a complaint in Boston. With guidance from whistleblower experts at Mahany Law, he accused Allied Home Mortgage Capital Corporation of massive mortgage fraud in a False Claims Act “qui tam” whistleblower lawsuit.

Over five years later, and after a trial that lasted five weeks, a jury found both the corporation and its CEO, Jim Hodge, guilty of knowingly representing to Housing and Urban Development (HUD) that certain loans were properly prepared and eligible for Federal Housing Administration (FHA) insurance, when in fact they were not.

Belli had managed several Allied branches in Massachusetts, Rhode Island, Arizona, and other states. He was thus in an ideal position to observe Allied Capital’s fraudulent practices, and he was determined to bring the scheme to light. Unfortunately, he passed away before the verdict came out only days ago in Texas. The move to a Texas court had been a choice of the defendants.

Read on.

Former Federal Investigator Says Government Didn’t Investigate Wells Fargo Whistleblower Cases

Darrell Whitman, a former investigator for OSHA’s Whistleblower Protection Program, says his agency failed to investigate warnings from Wells Fargo employees in 2010.

Six years ago, two Wells Fargo employees filed whistleblower complaints with the federal government.

They sent their cases to the Department of Labor’s Whistleblower Protection Program, which is administered by the Occupational Health and Safety Administration.

But an investigator who reviewed cases for the agency says no one actually investigated the complaints.

This revelation comes as the nation reels from an enormous Wells Fargo banking scandal. The San Francisco-based company was fined $185 million last month after employees opened two million phony bank accounts and credit cards to meet sales goals.

Now Darrell Whitman is breaking his silence to the NBC Bay Area Investigative Unit, claiming if his agency had done its job, the bank’s widespread practice of opening fraudulent customer accounts could have been exposed and fixed years ago.

“I think it’s pretty obvious they don’t follow protocols,” Whitman said of OSHA. “You don’t do the job, that’s pretty close to dropping the ball, isn’t it?”

Whitman worked in the agency’s San Francisco office from 2010 to 2015. He says in May 2010, OSHA received two complaints from former Wells Fargo employees who claimed the company retaliated against them for raising red flags about the bank’s business practices.

Whitman says instead of investigating, the agency held the complaints for six months. He says in November 2010, after the two complainants decided to file federal lawsuits against Wells Fargo, his supervisors assigned him the cases simply to close them.

“They assigned it to me only for the purpose of dismissing the complaint,” he said.

According to OSHA policy, the agency is relieved of pursuing whistleblower cases when complainants head to court. But, Whitman says the agency should have started and completed the investigations before the whistleblowers filed their lawsuits.

Source: Former Federal Investigator Says Government Didn’t Investigate Wells Fargo Whistleblower Cases | NBC Bay Area http://www.nbcbayarea.com/news/local/Former-Federal-Investigator-Says-Government-Didnt-Investigate-Wells-Fargo-Whistleblower-Cases-397518261.html#ixzz4NavdiMn6

Dwight Haskins: Why did regulators ignore rising risks at Citigroup despite warnings of the oncoming crisis?

 That tweet is from Dwight Haskins who is follow on Twitter. Dwight is a whistleblower and former government bank regulator. We more people like Dwight Haskins, William Black, and others to continue to speak out since we have a current government agencies that won’t go after the repeated offender banks and big corporations that continue to pay records fine instead of indict the corporate and banks execs.

December 6th, 2014


 By Dwight Haskins.

My concerns with Citigroup’s derivatives exposure was communicated to FDIC senior management in 2007. I doubt I could have been any more clear in my warnings that Citigroup and its accountants were “hiding” the risk exposure the banking company presented to the FDIC insurance fund.

My supervisors buried my warnings and pretended they were unaware of such risk exposure right up until mid-2008. Why weren’t senior regulatory officials and accountants held accountable? Why did the Financial Crisis Inquiry Commission ignore reports of these regulatory lapses?

From: Haskins, Dwight J.
Sent: Thursday, October 18, 2007 11:12 AM
To: Corston, John H.; Hirsch, Pete D.
Subject: Long and Short of Citigroup SIV exposure, insurance implications?


FYI — looks like we will want to consider how best to track some of these unique, off- balance sheet, complex bank risks and how they are aligned with deposit insurance premium considerations. The SIV (structured investment vehicle) presents a particularly challenging policy and accounting issue I suspect, for us, and the National Risk Committee, and Policy staff.

There has been lots of press this week regarding potential exposure to the banks regarding their Structured Investment Vehicles (SIVs). I was trying to explain the situation to others earlier and thought it worthwhile to consider the unfolidng risks. Considering the Citigroup exposure, here’s the important issues as I see it.

Citi sets up the SIV but since the SIV has no credit history, Citi had to guaranty any loan provided by the investors that the SIV transacts. The loan by the SIV is also secured by the mortgage- backed securities, commercial paper, or CDOs purchased by the SIV. The loan proceeds were used by the SIV to purchase MBS/CDOs that pay 7.5% interest, while borrowing at 4.5% interest.

The SIV borrows short term at 4.5%, lends long term at 7.5%, and remits the spread to the investors and pays a fee to the bank for administering the SIV. What promotes investor interest is the guaranty by the bank and the fact that the rating agencies opined that there was very little risk in lending to the SIV in part because there was “over-collateralization” (initially, that is) to support the loan.

Everything is fine until now when it turns out that the investments the SIV purchased are not performing as planned. The mortgages aren’t getting paid, so the value of the mortgage-backed securities purchased for say $100 are only worth $80. The lender/investors gets word and ask the SIV to pay back the loan.

The SIV can’t really pay the loan back because it used the cash to buy the MBS. Citi doesn’t necessarily have the cash reserves to make good on its guaranty without having to sell some of its investments to get cash — and that most likely would require having to unload under-water assets, causing loss recognition. The SIV can’t sell the MBS because the marketplace knows they are bad investments and nobody wants them.

But Citi guaranteed the loans, so if push comes to shove, Citi is on the hook. Citi would have to buy the investments for the amount the SIV owes even though they are not worth that much, or sell the underlying investments and pony up the rest. This could cause the bank major losses. By the way, I saw no mention of any of this in Citigroup’s latest 10-Q so it could be interesting to see if the SEC embarks upon some inquiry since I would think some discussion was warranted in the Management and Discussion Analysis.

There is a lot of commercial paper issued by the SIV apparently due in November and Citigroup doesn’t apparently think investors are going to be interested in rolling over new commercial paper for old commercial paper knowing the collateral value is suspect. Solution? Create the M-LEC as super SIV. The major banks will put some cash into this super SIV account, and that pool of cash, together with new commercial paper issued byM-LEC, will be used to purchase the bad investments that the SIV is unable to finance.

While the underlying investments haven’t changed or gotten any better, the transactionestablishes a new carrying value and prevents mark-to-market impairment from being realized. So, instead of accepting that the investments are worth $80 and recognizing the loss, they are sold to the M-LEC who is willing to pay $95 instead of $80. M-LEC gets $15 from the banks (the cash they invested in the M-LEC) and $80 by issuing new commercial paper. The commercial paper lenders (investors) are fine with this apparently since the banks will take the first loss if the investments end up not paying off.

The only thing not mentioned is the accounting rules. How does the investment get valued when it is sold to the M-LEC? It may be worth $80 which looks to be the market value. But if the new investors are willing to pay $95 the accountants may go along with that value. Lets say at $95.

The “loss” to the bank (Citi in this case) that guaranteed the selling SIV is only $5, and not $20 — all because of the newly created super-SIV was constructed. The theory, I suppose, is that in time investors will be less worried about the value of the investments and the investments may rise in value again as the market returns to normalcy. Lets say the value goes back to $100. Everyone gets their money back with no losses reflected. One could see this as a “win-win” situation, perhaps giving the banks a chance to fund reserves for any future losses.

But, one could take the argument that this unique arrangement is to prevent any equity capital impairment to Citigroup.

Shouldn’t there be some “additional” or implicitdeposit insurance premium charged to Citigroup to reflect the scenario that the bank’s capital was at least temporarily impaired until the M-LEC could save the day? 

One could argue that Citi should be exacted a charge for being a guarantor to the SIV which puts their capital position at risk.

In addition, charging Citigroup for this additional risk could counter the argument by some that moral hazard is being encouraged by the Treasury for encouraging this workout scheme.

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FDIC continues to be hyper-aggressive in using lawsuits to punish adversaries whether the agency has a case or not

July 14th, 2014

Read on.


Wells Fargo whistleblower tried to warn company years ago

DES MOINES, Iowa —A Wells Fargo whistleblower who said she tried to warn the company years ago has a friend in Des Moines telling the same story.

The Chicago City Council approved Monday a one-year suspension for Wells Fargo from city business because of its scandal over phony accounts, joining the states of Illinois and California in punishing the bank.

A former coworker of the whistleblower said she is proud information on the company came to light, but sad so many Wells Fargo workers were fired for doing what they felt was necessary to keep their jobs.

Danita Doris said she only lasted a year at the Wells Fargo branch in St. Helena, California because of daily sales pressure.

Her co-worker was Yesenia, the whistleblower who claims she first alerted the Wells Fargo seven years ago about fake accounts forced on unsuspecting customers.

“I’m frustrated that it’s A, taken so long to come to light, and B, that all the higher ups are acting surprised,” Doris said.

Doris said even as a teller the pressure to meet a daily quota was immense, and she and others often participated in helping co-workers meet their goals.

“I would say (I had) 10 different accounts, 15 different accounts,” Doris said.

Read on.

Wells Fargo whistleblower says she flagged fraud years ago

CBS News:

Wells Fargo CEO John Stumpf has claimed he first heard about the creation of fake accounts in 2013, but only on “CBS This Morning,” one whistleblower says she alerted the company years earlier.

“I started noticing what I thought were honest mistakes. But then these honest mistakes, you know, became a very clear pattern,” Yesenia Guitron said.

uitron said she saw strange things happening to customer accounts after she began working at the Wells Fargo branch in St. Helena, California, in 2008, reports CBS News correspondent John Blackstone.

“People ending up with 10-to-15 debit cards that they didn’t request,” Guitron said.

“For one customer?” Blackstone asked.

“For one customer,” Guitron responded.

When her complaints to the branch manager were ignored, she went to human resources and to the bank’s ethics department.

“Constantly emailed them back, you know, this is happening. What did you find? What are we going to do?” Guitron recalled.

Eventually, as her complaints continued, she says the manager of the branch in St. Helena came to her desk, told her she was fired, and escorted her out the door.

She responded in 2010 with a lawsuit claiming she was dismissed because she raised concerns about bank employees “opening accounts without the consent or authorization of the prospective clients.”

“I felt similar to the case with Erin Brockovich, you know, here’s this little me against a big powerful Wells Fargo bank. Nobody’s going to believe what I’m saying,” Guitron said.

A judge dismissed her claims, accepting Wells Fargo’s version that she “failed to meet her sales goals, and that she was thus not performing her job satisfactorily.” The bank sent CBS News a statement reading: “We do not tolerate retaliation against team members who report their concerns,” while noting they “agree with the judge’s finding that her claims of retaliation had no merit.”

Wells Fargo whistleblower joins Zeeland, Michigan woman’s mortgage fight

ZEELAND, Mich. — Gretchen Molotky is a successful single mom who made a living in real estate, only to see the market she once worked in betray her.   Now, she’s just days away from losing a home she says is her entire life savings.

Molotky’s twisted nightmare of lost paperwork, lost payments and foreclosure is a mortgage mess.  It’s a case that a Wells Fargo whistleblower is tackling one by one, hoping to make the system accountable for this kind of tragedy.

Beth Jacobson made national headlines in 2012, working with the Department of Justice and exposing Wells Fargo’s efforts to target low income African American communities in Baltimore for shoddy sub-prime loans.

Jacobson was the top producer for sub-prime loans within Wells Fargo before the housing market crash. She now fights wrongful foreclosures across the nation.

Her case in Baltimore led to a $175 million settlement.   Now, she’s backing Molotky’s claims, saying this West Michigan mom isn’t alone in her struggle.

Read on.

JPMorgan Chase Whistle-Blower Suit Revived by Appeals Court

  • Former manager claims bank violated Sarbanes-Oxley in firing
  • Appeals court overturns judge second time, bank must face suit

A whistle-blower lawsuit claiming JPMorgan Chase & Co. fired a wealth manager for reporting a client’s possible illegal behavior was revived for a second time by a federal appeals court.

The New York court on Monday reversed a judge’s decision to throw out the lawsuit and ordered him to consider the case. Jennifer Sharkey sued in 2010 claiming she was fired as a vice president in J.P. Morgan’s Private Wealth Management Group for investigating allegations that a long-term client might be involved in fraud or money-laundering.

According to Sharkey, she was fired one week after making a formal recommendation that the bank end its relationship with the Israeli client after spending months warning about possible illegal activity. The person wasn’t named in the lawsuit and is referred to in court papers as “Client A.”

Read on.

The Bank Foxes are Guarding the SEC Chicken Coop!

In this last week’s World Finance, reporter Gretchen Cashen highlights Eric Ben-Artzi’s bold gesture in refusing a Whistleblower reward and why he did so, his experience at Deutsche, and the parallels with mine at Citigroup.
Most importantly, it takes a hard look at one of the most egregious issues in government: that of the regulators, most specifically, the Securities and Exchange Commission (SEC). My own experience is indicative of their lack of accountability. When I could not persuade Citigroup’s Board of Directors to conduct an internal investigation of the bank’s financial malpractices, I turned to the SEC.
Turns out it was all in vain, as the 1,000 pages of fraudulent activity I had documented was not only buried, it was locked up. The SEC classified my testimony as “confidential and trade secrets” and has repeatedly refused to release it, despite much of it being public information.
Like Ben-Artzi, I believe, there is an “incestuous” revolving door relationship between Wall Street banks and the regulators. Anyone who leaves the SEC has a ready-made position within the banks or those who support them.

We Must Protect Shareholders From Executive Wrongdoing! Eric Ben-Artzi, Deutsche & the SEC

I know I did the right thing, Mr. Eric Ben-Artzi told several newspapers this last week (FTand 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.

2nd Circ. Judges Doubt Dismissal Of JPM Whistleblower Suit

Law360, New York (September 1, 2016, 2:20 PM ET) — Two Second Circuit judges had clear misgivings Thursday about the dismissal of former JPMorgan Chase & Co. wealth management pro Jennifer Sharkey’s whistleblower retaliation suit against the megabank, saying a dispute about whether Sharkey was fired for performance reasons appeared to be a question for a jury.

Judges Reena Raggi and Denny Chin said repeatedly throughout oral arguments in the wake of U.S. District Judge Robert W. Sweet’s 2015 dismissal of the Sarbanes-Oxley Act damages suit that disagreement between Sharkey and her former boss, defendant Leslie…

Source: Law360