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Protecting Whistleblowers since 1977

Too Big to Jail?

Dylan Blaylock, October 16, 2013

Editor's Note, from GAP President Louis Clark: Michael Winston is a former executive at Countrywide Financial Corporation who blew the whistle on the company's clearly fraudulent activities that contributed to the 2008 financial crisis and subsequent recession. A guest on GAP's American Whistleblower Tour initiative and a close collaborator of ours, Winston has agreed to publish several entries on The Whistlebloggerregarding both his experience as a truth-teller in the finance industry, and the continued lack of accountability enforced by the government toward the officers of large-scale financial institutions. These entries are part of GAP's Know Your RIghts Campaign covering the Banking Industry.

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In late December 2012, Swiss bank UBS agreed to pay $1.5 billion in fines to international regulators following a probe into the rigging of a key global interest rate. In admitting to fraud, Switzerland's largest bank became the second bank, after Barclays, to settle over the rate-rigging scandal. The fine, to be paid to authorities in the U.S., Britain and Switzerland, came just over a week after HSBCagreed to pay nearly $2 billion for alleged money laundering, transferring funds through the U.S. from Mexican drug cartels and nations under international sanctions like Iran.

Just weeks later, Bank of America agreed to pay mortgage finance firm Fannie Mae $10.35 billion to settle agency mortgage repurchase claims on loans it originated and sold to Fannie Mae through year-end 2008.

Months later, the U.S. Department of Justice filed its first lawsuit against a company over mortgage loans sold to big mortgage financiers, which were bailed out in 2008. The defendant is Bank of America, the owner of now-disgraced Countrywide Financial Corporation, once the largest mortgage lender in the country.

The suit was filed for fraud over “toxic” mortgage loans sold by Countrywide. Because of this, millions of Americans are paying more on their mortgages than their homes are worth. Millions more face foreclosure. Millions of jobs have vanished.

For a nation hungry for genuine accountability for the events that led to our economy’s implosion, this announcement suggests that, perhaps, justice is near. But I’m not holding my breath. The unwillingness to hold people accountable for such wrongdoing is a very real problem with our current strategy in addressing malfeasance in the financial sector, and calls for a viable solution. This not only affects people in every state, it is also a global issue of potentially apocalyptic proportions.

“The fraudulent conduct alleged in the complaint was spectacularly brazen in scope,” said the U.S. attorney filing the suit, which seeks at least $1 billion in penalties.

“Brazen” is the right word. I have seen this conduct up close.

Journalists covering my story have called me the “whistleblower who conquered Countrywide.” At this point, though, my experience is more like whistling in the wind.

In 2009, after serving several years as Managing Director, Enterprise Chief Leadership Officer for Countrywide and Bank of America, I filed a lawsuit against them for their often abusive practices. After months of their evasive tactics and a nearly month-long jury trial, we had a verdict. On Feb. 3, 2011, the jury vindicated me and held Countrywide/BOA accountable for wrongdoing in violation of public policy.

As an ex-employee, I am (I believe) the only individual who has compelled testimony in court of Countrywide’s top officers – including cofounder, CEO and chairman of the board Angelo Mozilo – and convince a jury of their wrongdoing.

The jury found Bank of America/Countrywide guilty and awarded me damages. I am still waiting for justice. They have paid nothing, brazenly acting as if they are above the law. They stall, evade and stonewall. Later, after “shopping for justice,” they had the jury verdict and court ruling reversed.

Why, five years after the fraud and irresponsible actions of companies like Countrywide brought us to the brink of total collapse, have there been no prosecutions against key executives? Is our justice system incapable of pressing these cases to their rightful conclusion? Or just unwilling?

In 2009 the Securities and Exchange Commission brought a civil suit against Mozilo and his colleagues for fraud and insider trading. The case never saw the inside of a courtroom. It was quietly settled, and Mozilo paid only about one-third of his penalty. Who paid the other two thirds? Taxpayers.

These banks were accused of fraud and contributing to financial decline not seen since the great depression. Is it no longer a crime to defraud customers and shareholders? Enormous sums of money are set aside as “reserves” to cover litigation and settlements. Financial pay-offs are thought to be “the cost of doing business.”

In the 1980s savings and loans debacle, prosecutors sent more than 800 bank officials to jail. Enron, WorldCom and Arthur Andersen all brought criminal prosecutions and jail time for people at the top.

Total number of bank officers responsible for the 2008 meltdown who have gone to jail? Zero. Where are the Charles Keatings, the Michael Milkens and the Kenneth Lays of the 2008–09 disaster?

Punishment is not the only way to modify behavior, but it works. Instead, executives now realize that they face virtually no consequences for reckless lending, exotic investments and fraud. Thus, these actions continue.

Haven’t we had enough evasion? I don’t believe the American people want to settle. We want to see the malfeasant held accountable and punished.

Isn't it time law-enforcement officials satisfied their commitment to transparency, responsibility and accountability?
 

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Michael G. Winston was formerly Managing Director, Enterprise Chief Leadership Officer for Countrywide Financial Corporation. Prior, over a thirty-three year career, he held similar positions at Motorola, Merrill Lynch, McDonnell Douglas and Lockheed Corporations.

This post is from a guest blogger, and not GAP staff. If you are interested in authoring a guest post related to whistleblowing, please email Blog Editor & GAP Communications Director Dylan Blaylock at dylanb@whistleblower.org with your idea.