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Looking for a Few Good Whistleblowers

Posted  June 1, 2012

By Gordon Schnell 

Last week, the Justice Department put out a formal call to arms for whistleblowers with inside information on fraud or misconduct relating to residential mortgage-backed securities.  These are those nasty bundles of questionable mortgages that financial institutions for years traded like monopoly money and which ultimately triggered the financial meltdown that began in 2008.  After all of this time, believe it or not, many of the financial institutions involved in this mischief have not been brought to task for their corporate misdeeds.

It is not because the government has not tried.  In November 2009, President Obama created the Financial Fraud Enforcement Task Force, which encompasses the broadest coalition of federal and state enforcement bodies ever tasked with fighting fraud, to go after those that contributed to the financial crisis.  And in January of this year, the Task Force created the Residential Mortgage-Backed Securities Working Group devoted exclusively to dealing with abuses of these particular financial instruments.  Apparently, this increased regulatory attention has not been enough to ferret out all of the wrongdoing and those responsible.

That is why the Justice Department has now formally reached out to whistleblowers.  With its new StopFraud website, the government has acknowledged the difficulty it has faced in bringing the perpetrators of this financial fraud to justice and the critical role that whistleblowers can play in assisting the government with this charge:

We are particularly interested in information from corporate insiders — that is, people who worked with RMBS [residential mortgage-backed securities] in the financial industry and witnessed the misconduct.  Fraud can be hard to uncover without help from whistleblowers who were corporate insiders.

With this newly invigorated outreach, the government is also recognizing that it is going to take a lot more than gentle coaxing to get whistleblowers to step forward.  It is going to require the promise of protection and a significant financial reward.

Why else risk the retaliation and alienation that so often accompanies stepping forward and trying to do the right thing.  With the new whistleblower protections under the Dodd-Frank Wall Street Reform Act, and a potential whistleblower take of up to one-third of any government recovery, the government is hoping to get the private assistance it so sorely needs to clean up this financial mess, and prevent it from happening again.  And with it’s more aggressive recruitment of a few good whistleblowers, the government is sending out a strong signal — to corporate miscreants and whistleblowers alike — that whistleblowing is an indispensable piece of the new enforcement scheme.

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