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Richard Bowen and Sherry Hunt were reporting on the toxic scam and still there was no action from the DOJ, but now there is a small victory, says Bill Black, former financial regulator

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SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to this edition of the Bill Black Report. I’m Sharmini Peries coming to you from Baltimore. Bill Black is an associate professor of economics and law at the University of Missouri — Kansas City. He’s a white-collar criminologist and former financial regulator. He’s the author of The Best Way to Rob a Bank is to Own One. He’s joining us from Quito, Ecuador today. Thank you so much for joining us, Bill. BILL BLACK, PROF. ECONOMICS AND LAW, UMKC: Thank you. PERIES: Bill, you have an update, or fourth edition, of your series that you’ve been writing on Citibank whistleblowers. Tell us what you have. BLACK: Okay. So there is some good news in life. The only reason that the Justice Department has been able to bring even these pathetic civil cases in which they, with one exception, sue only the company and get fines relative to the size of the bank that don’t matter, with each case of the giant U.S. banks, made possible by a whistleblower. The Citigroup case was made possible by Richard Bowen and Sherry Hunt, who were colleagues as underwriters. The people designed to make the loan, sure the loans are done safely. And in the case of JP Morgan, Alayne Fleischmann, and the case of Bank of America, Edward O’Donnell. What happened. Well, it turns out that Richard Bowen and Sherry Hunt were able to document, originally when they looked, 40 to 60% of the representations and warranties that Citigroup was giving Fannie Mae and Freddie Mac to buy these toxic mortgages were false. Imagine that. 40 to 60% of the time they were lying. And so they, Richard Bowen and Sherry Hunt blew the whistle all the way up the chain at Citigroup, including to Robert Rubin, in writing. PERIES: Robert Rubin being? BLACK: Robert Rubin was former treasury secretary under President Clinton. He was, would soon become chairman of the board of Citigroup. He is the leader of the Wall Street wing of the Democratic Party. He said, to the financial crisis inquiry commission: “I have no idea what we did in response, and I don’t know who did anything in response, but I heard back that we did great things.” So what did they actually do. Well, first they didn’t fix the problems, they made it worse, so that by 2007, when Bowen and Hunt are looking again, the rate at which Citi is lying to Fannie and Freddie is up to 80%. And the next thing, of course, that Rubin was sure that Citicorp was doing the right thing, is both Bowen and Hunt were retaliated against. Bowen was a big deal, a senior vice president, staff of 220. One of his principal lieutenants was Sherry Hunt. He was reduced to two people reporting to him, and Sherry Hunt was reduced to one person reporting to them. So that’s what you get when you do the right thing. Now, they gave the Department of Justice the ideal criminal case on a platinum platter against the most elite leaders, including Robert Rubin at Citigroup, and the Justice Department refused to do anything. But Sherry Hunt’s a lot of fun. So first she gets retaliated against in late 2006, early 2007. But she stays at Citigroup, and she starts keeping notes and documents and emails, and Citigroup does it again. Except now, it targets the entity, the federal governmental agency, designed to help bail out the banks like Citigroup, which was insolvent because of all of its frauds. Right? At one point we actually owned 33% of it. And so we used the Federal Housing Administration, the FHA, its insurance guarantee program, to ensure that there was a flow of credit to the banks even with the collapse of the secondary market in mid-2007, the 2008 financial disaster, et cetera et cetera et cetera. Citi, instead of top executives, instead of being grateful, a), of course, goosed their executive compensation. But b) decided hey, let’s target FHA, how that Fannie and Freddie are out of it, for our frauds. And Ms. Hunt documented carefully how they did this, how they threatened her, that her ass was on the line. How they gave orders to use brute force to make the problems in the loans they were getting the guarantees from FHA disappear. And she again gave this to the Securities and Exchange Commission, the Department of Justice, and they did nothing. So she brought a false claims act. And the complaint was so good that even the Justice Department felt compelled to intervene and bring this case. Citigroup not only settled, but settled saying yes, we did bad things in all of this. Again, no prosecution. And here’s the wonderful bottom line. So they’re going to do the press conference, right? The U.S. Attorney’s office in Manhattan, and it does mention that there’s a whistleblower suit, and they’ve joined, the Justice Department joined that suit. But never bothers to mention the whistleblower’s name. And then in the last paragraph, the Justice Department says, “We want to really thank the HUD which runs FHA, the Housing Urban Development agency, for their just extraordinary assistance to us.” But not a word of thanks to Ms. Hunt, who made it all possible, who gave it to the FHA and the Justice Department on a platinum platter, and who lost her job as a result of all of this. But the good news is that the case was so compelling that — you have to net out attorney’s fees and expenses and such — but she got a $32 million award under the false claims act for helping to recover hundreds of millions of dollars from the frauds at Citigroup. But seven years. Seven years past the peak of the crisis and the Justice Department is still batting zero, zero, zero against the elite frauds who caused the crisis in terms of prosecutions. PERIES: Bill, thank you so much for this series on whistleblowers at Citibank. It just goes to tell you the value of that in our society, to have whistleblowers. Thank you so much. BLACK: Thank you, and thank the whistleblowers. PERIES: And thank you for joining us on the Real News Network.


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William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.