How Bank of America Punished Its Own Employees For Ferreting Out Mortgage Fraud
Since the housing crash, Bank of America (BAC) executives have repeatedly vowed to uncover any mortgage fraud committed by the company. But a recent U.S. Labor Department ruling against the company tells a very different story -- one in which the financial giant fired its own fraud investigations chief for discovering widespread illegalities within its Countrywide subprime lending unit.
The U.S. Department of Labor earlier this month ordered B of A to rehire the employee, former executive vice president Eileen Foster, and pay her $930,000 in back wages and other penalties after determining that the company had violated federal "whistleblower" rules in dismissing her in 2008. Said David Michaels, Assistant Secretary for Occupational Safety and Health, in a statement:
It's clear from our investigation that Bank of America used illegal retaliatory tactics against this employee. This employee showed great courage reporting potential fraud and standing up for the rights of other employees to do the same.Cover up at Countrywide
Investigative journalist Michael Hudson of the Center for Public Integrity documents in meticulous detail what happened to Foster (see here for part two of the story). There are many twists and turns, but here's the gist: She was fired for doing her job.
Beginning in 2007, Foster led a team of investigators at Countrywide in revealing rampant fraud at the lender, which at the time was among the leading issuers of supbrime loans. What they found shocked even her, a banking executive with more than two decades of industry experience. For instance, Countrywide employees were routinely using scissors, tape and Wite-Out to fabricate bank statements, property appraisals and other phony paperwork in order to misrepresent borrowers' financial qualifications. Hudson reports:
"You're looking at it and you're going, Oh my God, how did it get to this point?" Foster recalls. "How do you get people to go to work every day and do these things and think it's okay?"As the probe carried into 2008, after B of A bought Countrywide in January of that year for $4 billion, Foster concluded that senior Countrywide executives were trying to cover up the fraud. She was by no means alone in that view. Hudson notes that 30 former Countrywide employees allege that executives at the lender "encouraged or condoned" fraud.
Employees punished for speaking out
At the same time, Foster and other employees who raised concerns about the subprime firm's activities were discouraged from pursuing their investigation. Some were fired. Countrywide's own "Employee Relations" department, which she had reported to the company for refusing to act on fraud complaints, opened its own investigation -- into Foster:
A senior vice president from Employee Relations began questioning members of Foster's team about her management style, according to the Labor Department. One of Foster's fraud investigators later complained, agency records show, that Employee Relations reps grilled him for almost three hours, asking leading questions and trying to get him to say damaging things about her.Despite this effort to tarnish Foster's reputation, B of A in July of 2008 appointed her senior vice president in charge of the company's mortgage fraud unit. And by early September, she had assumed the Employee Relations inquiry was dead, since after the merger B of A had barred the unit from conducting such investigations. Foster was wrong. The company fired her that month.
B of A initially offered Foster a severance package worth her annual salary of nearly $230,000, but on one condition -- she had to agree not to disclose anything about she had found at the company. When she refused, the buyout offer was retracted and she was summarily fired.
B of A told Foster she was being let go for "inappropriate and unprofessional behavior" and "poor judgment as a leader," Hudson says. That remains the company's line. A B of A spokesman told Bloomberg this week that her dismissal was "solely based on issues with her management style and in no way related to the complaints and allegations she made." The bank is appealing the Labor Department's ruling.
Holding the line
That doesn't jibe with how some of Foster's former colleagues remember her. Here's what a former Los Angeles Police Department captain who worked with her at Countrywide and B of A -- and who B of A named to replace her as head of its mortgage fraud investigation unit -- told Hudson:
"She had a lot of integrity," he says. Any suggestion she was unprofessional is "total b---s---, to be honest with you."Foster calls herself a reluctant whistleblower, Hudson notes. Now an executive at a Burbank, Calif., credit union, she has declined interview requests from numerous media outlets. With the government having ruled in the case, she is now sharing her story to highlight the problem of companies silencing employees who expose fraud:
"I don't want this to be about me," Foster says...
Fraud flourishes, she says, when companies are allowed to intimidate and abuse employees. Without protections for whistleblowers, it's easy for big companies to "beat people down" and silence them.
"It's very difficult to hold the line and do what you believe," she says.Foster's experience is far more than a cautionary tale, however. It is first-hand evidence of the rot at B of A. Not only within the company's loan portfolio, as the federal government, state legal officials, investors and other financial firms sue the bank over its deceptive mortgage practices, but also within B of A's corporate ethos.
That's all the more troubling for B of A, whose solvency is now in question over exactly the sort of activities Foster tried to stop. Such defects can't be papered over by reshuffling corporate divisions, as the company is doing under "Project New BAC." Nor is the solution to fire employees who dare bring such problems to light.
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