Consumer Fraud

U.S. Attorney General Holder calls for better whistleblower rewards in financial industry

whistleblower U.S. Attorney General Holder calls for better whistleblower rewards in financial industryWhistleblowers who help expose fraud and other misconduct in the financial world could earn bigger rewards in the future in exchange for the efforts, if U.S, Attorney General Eric Holder has his way.

Threats brewing in the financial industry today have come to resemble some of the dubious greed-driven behaviors that devastated the U.S. economy in 2008 despite the government’s efforts to prevent a similar catastrophe from recurring in the coming years.

“We are already witnessing a troubling return to some of the very same profit-driven risk-taking that contributed to the 2008 collapse,” Mr. Holder said in a speech Wednesday at New York University. “Law enforcement needs to keep pace with evolving challenges so we can prevent the next financial bubble from spiraling into the next full-blown economic crisis.”

The U.S. Department of Justice is already probing possible illegal conduct by executives and others at major financial institutions. According to Mr. Holder, criminal charges could result from these investigations.

In recent months, the Justice Department has reached record multi-billion settlements with Bank of America, Citigroup, and JPMorgan Chase. Although these agreements will give millions of homeowners harmed by the 2008 crash some relief, they have not been enough to discourage the misconduct that created the financial crises in the first place.

“It remains true that, at some institutions that engaged in inappropriate conduct before and may yet again, the buck still stops nowhere,” Mr. Holder said. “Responsibility remains so diffuse, and top executives so insulated, that any misconduct could again be considered more a symptom of the institution’s culture than a result of the willful actions of any single individual.”

The Justice Department has reached some settlements under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), which was enacted in 1989 after the Savings and Loan Crisis of the 1980s, but the act caps whistleblower rewards at $1.6 million – a “paltry sum” in the words of Mr. Holder, compared to the financial executive’s typical annual salary of $15 million per year, not to mention the $26 billion in bonuses they enjoyed last year.

Mr. Holder said that instead of being capped, whistleblower rewards under FIRREA should be more in line with those of the False Claims Act, which rewards whistleblowers with up to 30 percent of the total recovery.

The False Claims Act has become one of the Justice Department’s most effective weapons for fighting fraud targeting Medicare and Medicaid and other government programs and agencies. Better whistleblower rewards would give witnesses a better incentive to risk their careers and reputations by calling out fraud in the financial industry, which is prohibitively large and complex for a few outside government regulators to police.

Sources:

Wall Street Journal
NBC News