In 2008, the international financial system experienced a crisis of confidence and liquidity unseen in the United States since the Great Depression. Wall Street investment banks and hedge funds – to which corporations, pension funds and citizens had entrusted their assets and resources – faced collapse. Venerable investment houses such as Merrill Lynch, Bear Stearns and Lehman Brothers disappeared in the ensuing financial chaos, and the US government was obliged to rescue other financial institutions deemed by the Treasury Department as “too big to fail.” AIG, the corporation that had insured many of the failing investments, was also rescued as the extent to which its tentacles had formed a stranglehold on the US financial system was exposed. The economy of the United States entered the “Great Recession,” and both industries and services shed jobs at an alarming rate, leaving experts perplexed at both the speed and the depth of the decline.
In the aftermath of the crisis, warning signs from before the crisis emerged. A whistleblower at the SEC testified before Congress that he had warned his agency about the most spectacular fraud – the Ponzi scheme at the Bernard L. Madoff Investment Securities LLC, well before the fund collapsed. Similarly, whistleblowers at AIG had attempted to right the corrupted corporate compliance office for at least a year before the insurance giant faced insolvency. As early as three years before the actual crisis exploded, informed financial analysts were predicting the debacle of 2008.
Perhaps most disturbingly, as the US government stepped in to bail out Wall St., those responsible for the recklessness of the previous decade walked away wealthy. In the past year, we have seen those who structured fraudulent transactions in securities, attached triple-A ratings to worthless bonds, and fictitiously inflated the value of investments personally profit from their actions. This occurred even as the rest of us, who trusted their decisions, lost our houses, jobs and pensions.
An information blackout about the economic bubble underlying the US economy prevailed in the executive suites of America’s major financial institutions. Those who tried to speak out were denounced, dismissed and silenced. In the absence of effective whistleblower protections, they could do little.
This blackout persists. Economists and financial analysts who brought on the crisis were enlisted in the formulation of the ‘solution’ because, we’ve been told, only they understand the complexities of the deals behind the collapse. Only they had the knowledge necessary to “unwind” them.
Over the past year GAP has consulted with whistleblowers who warned about the coming collapse, and we continue to do so. We work with corporate whistleblowers, the Congress and the press on a sound solution to the crisis, as the public debate on financial regulatory reform continues. The identities of whistleblowers who come to us are held in strictest confidence, and we make every effort to act effectively on their disclosures.
Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173)
The Financial Regulatory Reform includes gold standard whistleblower protections, ensuring greater enforcement of the law. GAP staff was very active in working with federal representatives to shape the whistleblower protection sections of this law. More about this law can be found on our Recent Legislative Victories page.
Update (6/15): Thad Guyer, GAP Adjunct Attorney and partner at T.M. Guyer and Ayers & Friends, has prepared an analysis of the whistleblower provisions of the Dodd-Frank Act. To date, it is the most comprehensive treatment of the law since the May 25, 2011 final regulations were issued, and it should serve as an aid to corporate whistleblowers and whistleblower advocates.