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Eileen Foster and the Failure of Corporate Criminal Justice

Exposing Countrywide

by RUSSELL MOKHIBER

 

Last month, Eileen Foster was at the National Press Club to receive the $10,000 Ron Ridenhour Prize for Truth-Telling. In 2007, Foster was a vice president in charge of investigating fraud at Countrywide Financial. A full time job, if you can keep it. Which she couldn’t.

 

Because she took her job seriously.

 

A Countrywide employee in Boston called Foster with evidence of widespread loan fraud in the Boston area.

 

Foster investigated and confirmed the employee’s report and eventually shut down six Countrywide offices in Massachusetts.

 

She started to pursue what appeared to be systemic fraud at the company when the executive suite got itchy.

On September 8, 2008, they came to Foster and put a 14-page document on her desk. Foster calls that a gag order. They also offered her $228,000. Foster calls that hush money. She was told if she accepted the money and signed the document, she could quit. If not, she would be fired.

 

She was fired.

 

Foster filed a complaint with the Department of Labor under the Sarbanes-Oxley whistleblower provisions.

 

Twenty-one out of 1,500 whistleblowers have gotten a favorable response from the Department of Labor.

 

So, Foster knew it was a bit like hitting the lottery.

 

But lo and behold, she hit it.

 

In October 2011, the Department of Labor ruled in her favor.

 

And in December 2011, the CBS News show 60 Minutes did a story titled Prosecuting Wall Street that featured Foster.

 

Now, Bank of America, which acquired Countrywide, is appealing the Department of Labor’s ruling.

 

A public hearing is scheduled for October 22.

 

On the 60 Minutes segment, Steve Kroft reported that “Eileen Foster has never been asked — and never spoken to the Justice Department – even though she was Countrywide’s executive vice president in charge of fraud investigations.”

 

We asked Foster – did the Justice Department ever contact you?

 

“Not before 60 Minutes,” Foster says. “After 60 Minutes, yes.”

 

What happened?

 

“I’m not sure I can talk about that,” she says.

 

“I’m encouraged, but I’m not sure if the movement is in the right direction,” Foster said. “There had been things taking place prior to the 60 Minutes piece.”

 

It has been widely reported that the U.S. Attorney in Los Angeles opened and closed an investigation of Countrywide without bringing charges. Is that what Foster is talking about?

 

“I’m not talking about any specific effort.”

 

“If what took place in these organizations wasn’t illegal, there has been a lot of activity which has taken place since that seems to me is clearly illegal – perjury, obstruction of justice and witness tampering.”

 

Is it your sense that this is over and done with and that the Justice Department has moved on?

 

“I hope not,” Foster said. “I have a fear that it is probably over and done with.”

 

At the Press Club last month, Foster said that she doesn’t trust the corporate line on internal reporting of problems.

 

“Critics insist that a whistleblower be compelled to first report problems internally, supposedly to provide the corrupt company the chance to correct wrongdoing,” Foster said at the Press Club. “But when I followed protocol and reported internally, I was summarily eliminated. The wrongdoing was protected, not corrected.”

 

“We cannot allow corporate malfeasance to run rampant and become institutionalized. People need to know that many corporations use hotlines and reporting policies to silence whistleblowers and conceal fraud.”

 

“Corporations now screen applicants for whistleblowing tendencies and assign lawyers to participate in internal investigations so they can shield the wrongdoing under the cloak of ‘privilege,’” Foster said. “The Congress and State Legislatures should eliminate the corporate lawyer cover-up by eliminating the use of so-called privileges in these circumstances.”

 

“So here we are several years after the onset of the financial crisis, caused in large part by reckless lending and risk-taking in major financial institutions. And still, not one executive has been charged or imprisoned! This stands in stark contrast to the savings and loan debacle in the 1980’s, where prosecutors sent more than 800 bank officials to jail.”

 

“Our current administration has defended the lack of prosecutions by labeling the executives’ actions ‘bad behavior,’ but not illegal. Assistant Attorney General, Lanny Breuer, told Steve Kroft of 60 Minutes, that although the risk-taking was offensive, and the greed was upsetting, it didn’t mean the Department of Justice could bring a criminal case. Perhaps we simply need a different means to a justifiable end.”

 

“When prosecutors were unable to convict Al Capone of racketeering, they convicted him of tax evasion instead. If there is insufficient legal evidence to convict these executives of what we believe are obvious crimes, then the federal government should refocus. Overwhelming evidence of perjury, witness tampering and obstruction of justice exist in the numerous claims, court filings and trial and investigative transcripts. We must not let these deeds go wholly unpunished. Perhaps financial industry whistleblowers should be permitted to present their information to grand juries without the help of government prosecutors. Then the people can decide how best to address this outrageous wrongdoing.”

 

“We can and must uphold the law and prosecute those who break it, especially “white collar criminals”, no matter how highly placed or how cozy they are with government officials. We must insist on full and complete investigations with accountability and punishment for the guilty parties. We must ‘keep the heat on’ and see justice done.”

 

[For the complete transcript of the Interview with Eileen Foster, see 26 Corporate Crime Reporter 21(10), print edition only.]

 

Russell Mokhiber edits Corporate Crime Reporter.