Elizabeth Warren gives green light to whistleblowers

Massachusetts Senator Elizabeth Warren is giving a bright green light to whistleblowers to come forward in her first Senate Banking Committee hearing.

Most media reports are focusing on Warren’s withering questioning of Securities and Exchange Commission Chairwoman Elisse Walter and Comptroller of the Currency Thomas Curry regarding their regulatory agencies seemingly axiomatic preference for settlement and consent decrees.

Walter defends SEC enforcement and litigation, calls attention to the limited penalties the Commission is authorized to impose and, in the end, concedes she will have to “get back” with specifics about the last time the SEC took big banks to trial.

The Comptroller of the Currency can meet its supervisory goals administering national banks and federal thrifts through consent orders and settlements, Curry responds.

Warren isn’t mollified and states her concerns concisely: “I am really concerned that ‘too big to fail’ has become ‘too big for trial.’ ”

But, it is when Warren articulates the benefits of public trials and brings attention to the book values of the largest banks that she energizes whistleblowers.

Unlike trials, settlements and consent orders invariably result in a flurry of news about the monetary size of the settlement, increased regulatory monitoring, beefing up compliance by the institution, and almost never yield any admission of wrongdoing. Settlements and consent orders are inadequate instruments to serve the public interest, Warren is saying, because “if [the largest banks] can break the law and drag in billions in profits and then turn around and settle, paying out of those profits, they do not have much incentive to follow the law.”

Worse, “it means that we did not have those days and days and days of testimony about what those financial institutions had been up to,” Warren observes.

In other words, public trials serve the public interest by enabling journalists to report and the public to evaluate information on the illegal conduct of major financial institutions that otherwise remains stored in regulatory archives. Trials and reporting vindicate a principled executive standing up to the corrupt organization.

Warren’s stance underscores the importance of not only aggressive prosecution, but building winnable cases where whistleblowers provide indispensable facts and irrefutable testimony. In fact, the Securities and Exchange Commission has an office dedicated to recruiting whistleblowers and protecting their anonymity.

Warren similarly signals incentives for whistleblowers to come forward when she observes that the largest banks trade below book values. “One would be because nobody believes that the banks' books are honest, or the second would be that nobody believes that the banks are really manageable--that is, that they are too complex either for their own institutions to manage them or for the regulators to manage them.”

What damning insights!

If no one (emphasis supplied) believes that the banks keep honest accounts or everyone’s convinced that too big to fail banks are abusing bigness, the social and public benefits of whistleblowers exposing fraud become ever greater and the professional risks lesser and lesser.

In every instance, Senator Warren’s lines of questioning send a bright green light to whistleblowers to shed reticence and provide direct evidence on malfeasances, defalcations and fraud so market administration can self-correct and markets function.

Young is founding partner at Young Law Group, P.C., a nationally renowned law firm specializing in SEC, IRS, CFTC, and False Claims Act/Qui Tam whistleblower cases in the pharmaceutical industry, healthcare, tax, finance, and government contracting.

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