Government Sees Massive Recoveries from Whistleblowers

Since 2009, the Department of Justice has brought more than 60 cases against financial institutions. Recoveries from those actions exceed $85 billion.

But even though the cases were resolved, the government has almost always reserved its right to continue civil and criminal investigations into individual executives at the firms.

That is according to U.S. Attorney General Eric Holder

Holder made the comments Wednesday at the New York University School of Law, according to prepared text of his speech.

He explained that by preserving such rights, accountability is enhanced, fairness is promoted and criminal activity is discouraged.

The attorney general highlighted the bankruptcy of Lehman Brothers six years ago after more than a century and a half in business, an event he said marked “the culmination of a period of deregulation, excessive risk-taking, questionable lending practices, and defective underwriting that heralded the worst financial crisis since the Great Depression.”

Holder noted that despite safeguards enacted since the financial crisis, the nation is already witnessing a return to the very same profit-driven risk-taking that contributed to the financial crisis.

He explained that such conduct raises new questions about the extent to which the activities might involve criminality.

The recent settlements with Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. for conduct related to the mortgage crisis turned out to be three of the largest settlements in the nation’s history, according to Holder.

“And in addition to imposing significant penalties, we took steps to both ensure accountability and provide relief to many consumers who continue to struggle in the housing market,” he stated. “We insisted that the financial institutions agree to clear, public statements about the misconduct that gave rise to the resolutions.”

He also talked about criminal guilty pleas extracted from Credit Suisse and BNP. These action resulted in multi-billion-dollar penalties.

“After years of speculation that some firms might be considered too systemically important to face criminal charges, the cases against Credit Suisse and BNP proved that no institution is too large to prosecute,” Holder said. “We have put that myth to rest once and for all.”

Holder said that mortgage fraud indictments nearly doubled between 2009 and 2010. Conviction rates have been around 93 percent.

But he noted that mortgage fraud cases are far easier to prosecute than more complex transactions involving more sophisticated traders.

One factor is that sufficient evidence is difficult to uncover since criminal intent might have been conveyed verbally and not in writing or by email. He cited a 2011 insider trading case where the defendants were alerted by media reports of the feds closing in and promptly destroyed all evidence.

But a cooperating witness who wore a wire in that case helped the Justice Department accumulate enough evidence to prosecute.

Holder explained that a whistleblower amendment to the False Claims Act has generated more than $22 billion in recoveries since 2009. In some cases, criminal charges resulted.

Whistleblowers can collect as much as a third of government recoveries.

“These cases — and other investigations that are currently pending — illustrate the unique ability of cooperating witnesses to help federal authorities uncover sufficient evidence to meet a high burden of proof,” Holder said.

But the False Claims Act only kicks in when the government was defrauded.

In cases where a party besides the government was defrauded, the Justice Department has had growing success utilizing the Financial Institutions Reform, Recovery, and Enforcement Act. However, whistleblowers in such cases can’t receive more than $1.6 million, “a paltry sum in an industry in which, last year, the collective bonus pool rose above $26 billion, and median executive pay was $15 million and rising.”