Posts by DwightHaskins:

    Why did regulators ignore rising risks at Citigroup despite warnings of the oncoming crisis?

    December 6th, 2014

    By Dwight Haskins.

     

    My concerns with Citigroup’s derivatives exposure was communicated to FDIC senior management in 2007. I doubt I could have been any more clear in my warnings that Citigroup and its accountants were “hiding” the risk exposure the banking company presented to the FDIC insurance fund.

    My supervisors buried my warnings and pretended they were unaware of such risk exposure right up until mid-2008. Why weren’t senior regulatory officials and accountants held accountable? Why did the Financial Crisis Inquiry Commission ignore reports of these regulatory lapses?

    From: Haskins, Dwight J.
    Sent: Thursday, October 18, 2007 11:12 AM
    To: Corston, John H.; Hirsch, Pete D.
    Subject: Long and Short of Citigroup SIV exposure, insurance implications?

    John/Pete,

    FYI — looks like we will want to consider how best to track some of these unique, off- balance sheet, complex bank risks and how they are aligned with deposit insurance premium considerations. The SIV (structured investment vehicle) presents a particularly challenging policy and accounting issue I suspect, for us, and the National Risk Committee, and Policy staff.

    There has been lots of press this week regarding potential exposure to the banks regarding their Structured Investment Vehicles (SIVs). I was trying to explain the situation to others earlier and thought it worthwhile to consider the unfolidng risks. Considering the Citigroup exposure, here’s the important issues as I see it.

    Citi sets up the SIV but since the SIV has no credit history, Citi had to guaranty any loan provided by the investors that the SIV transacts. The loan by the SIV is also secured by the mortgage- backed securities, commercial paper, or CDOs purchased by the SIV. The loan proceeds were used by the SIV to purchase MBS/CDOs that pay 7.5% interest, while borrowing at 4.5% interest.

    The SIV borrows short term at 4.5%, lends long term at 7.5%, and remits the spread to the investors and pays a fee to the bank for administering the SIV. What promotes investor interest is the guaranty by the bank and the fact that the rating agencies opined that there was very little risk in lending to the SIV in part because there was “over-collateralization” (initially, that is) to support the loan.

    Everything is fine until now when it turns out that the investments the SIV purchased are not performing as planned. The mortgages aren’t getting paid, so the value of the mortgage-backed securities purchased for say $100 are only worth $80. The lender/investors gets word and ask the SIV to pay back the loan.

    The SIV can’t really pay the loan back because it used the cash to buy the MBS. Citi doesn’t necessarily have the cash reserves to make good on its guaranty without having to sell some of its investments to get cash — and that most likely would require having to unload under-water assets, causing loss recognition. The SIV can’t sell the MBS because the marketplace knows they are bad investments and nobody wants them.

    But Citi guaranteed the loans, so if push comes to shove, Citi is on the hook. Citi would have to buy the investments for the amount the SIV owes even though they are not worth that much, or sell the underlying investments and pony up the rest. This could cause the bank major losses. By the way, I saw no mention of any of this in Citigroup’s latest 10-Q so it could be interesting to see if the SEC embarks upon some inquiry since I would think some discussion was warranted in the Management and Discussion Analysis.

    There is a lot of commercial paper issued by the SIV apparently due in November and Citigroup doesn’t apparently think investors are going to be interested in rolling over new commercial paper for old commercial paper knowing the collateral value is suspect. Solution? Create the M-LEC as super SIV. The major banks will put some cash into this super SIV account, and that pool of cash, together with new commercial paper issued byM-LEC, will be used to purchase the bad investments that the SIV is unable to finance.

    While the underlying investments haven’t changed or gotten any better, the transactionestablishes a new carrying value and prevents mark-to-market impairment from being realized. So, instead of accepting that the investments are worth $80 and recognizing the loss, they are sold to the M-LEC who is willing to pay $95 instead of $80. M-LEC gets $15 from the banks (the cash they invested in the M-LEC) and $80 by issuing new commercial paper. The commercial paper lenders (investors) are fine with this apparently since the banks will take the first loss if the investments end up not paying off.

    The only thing not mentioned is the accounting rules. How does the investment get valued when it is sold to the M-LEC? It may be worth $80 which looks to be the market value. But if the new investors are willing to pay $95 the accountants may go along with that value. Lets say at $95.

    The “loss” to the bank (Citi in this case) that guaranteed the selling SIV is only $5, and not $20 — all because of the newly created super-SIV was constructed. The theory, I suppose, is that in time investors will be less worried about the value of the investments and the investments may rise in value again as the market returns to normalcy. Lets say the value goes back to $100. Everyone gets their money back with no losses reflected. One could see this as a “win-win” situation, perhaps giving the banks a chance to fund reserves for any future losses.

    But, one could take the argument that this unique arrangement is to prevent any equity capital impairment to Citigroup.

    Shouldn’t there be some “additional” or implicitdeposit insurance premium charged to Citigroup to reflect the scenario that the bank’s capital was at least temporarily impaired until the M-LEC could save the day? 

    One could argue that Citi should be exacted a charge for being a guarantor to the SIV which puts their capital position at risk.

    In addition, charging Citigroup for this additional risk could counter the argument by some that moral hazard is being encouraged by the Treasury for encouraging this workout scheme.

    Comments Off on Why did regulators ignore rising risks at Citigroup despite warnings of the oncoming crisis?

    FDIC continues to be hyper-aggressive in using lawsuits to punish adversaries whether the agency has a case or not

    July 14th, 2014

     

     

     

    By Dwight Haskins.

     

    Sadly, not much has changed at the FDIC. The 600 pound gorilla is still fond of throwing its weight around and uses its 300 strong legal division to abuse and intimidate those who get in its way.

    The following articles show the FDIC has been hyper-aggressive in using lawsuits to punish adversaries whether the agency has a case or not. However, this case also shows what a lucrative the “revolving door” is for ex bank regulators. Hurwitz hired former FDIC chairman,William Isaac.Hurwitz additionally hired two other former high-ranking banking regulators-John Douglas, former General Counsel of the FDIC, to represent him in FDIC v. Hurwitz and former Federal Home Loan Bank Board (OTS’s predecessor) Chief Enforcement Officer Rosemary Stewart to perform as an expert witness in OTS v. USAT et al. Much of the S&L debacle of the 1980’s occurred under Stewart’s watch, prompting analysts to call the S&L scandals “Rosemary’s Baby.”

    The following are excerpts from the ruling on August 23, 2005 against the FDIC by Judge Lynn N. Hughes of the U.S. Southern District of Texas.

    “Introduction

    This is a cautionary tale where the emperor has new clothes — a bandit’s mask. The Federal Deposit Insurance Corporation sought to hold Charles Hurwitz individually responsible for all losses at United Savings, even though he had no obligation to the thrift or the government. Unable to focus its claims and unwilling to disclose its records in this suit — one that it brought — the FDIC surreptitiously paid another agency to bring a parallel administrative claim against Hurwitz, several companies, and other people. Later — much later — the FDIC dismissed its claims here.Hurwitz and two companies have asked that they recover their costs of defending the suit. They will recover their costs because the record revealscorrupt individuals within a corrupt agency with corrupt influences on it, bringing this litigation.

    The FDIC maintains that it had a solid case; that it exercised only its independent regulatory judgment; that it did not participate in extra-agency proposals or deals; and that it was promptly and thoroughly candid in this and the regulatory action. The facts are otherwise. An extensive record — produced at substantial expense and by repeated court compulsion — reveals a regulatory scheme that slipped into self-absorbed, extra-legal, politically motivated trampling of citizens and the law.

    The record includes (a) memoranda sent to as well as received from environmental groups; (b) notes of telephone calls between the FDIC and these groups; (c) minutes of conferences among FDIC staff, its counsel, and greens; (d) e-mails discussing a debt-for-nature swap, including adjustments to the dollar amount of the United Savings’s claims to reflect the value of the timber; (e) letters from Congress; (f) minutes of regular meetings of green groups, congressional staff, and other executive-branch staff; (g) recalcitrance in disclosure; (h) its squelching its inspector-general investigation; and (i) behavior at depositions that ranged from manipulative evasiveness to plain perjury.

    The record reveals that the FDIC attacked Hurwitz in a perverse combination of personal and political hostility. The personal part was political, too, since it was derived from the bureaucrats’ and their like-thinking co-conspirators’ appreciation of a successful entrepreneur as the personification of what they opposed in America. As individuals they are free to think and act as they wish, but as agents of the government they are constrained by their particular bureau’s statutory mandate and the Constitution’s restriction on personal, partial, and irregular government.

    When the government invokes the authority of the judiciary, it is obliged to follow the rules. This is called equal justice under law.

    The FDIC’s documents contradict its protestations of independence, the merit of its suit, and the legality of the arrangement with OTS. The FDIC was refractory about disclosing its internal documents because they demonstrate, beyond question, that it became a tool in a political guerrilla war at the behest of interest groups and the administration. These outsiders, in fact, shaped this case, including the damage “calculation.” The FDIC knew that it had no authority to pay the OTS for the other action. Despite these realities, the FDIC persisted in its expensive, abusive litigation for a decade.

    The public, through this court, has devoted substantial resources to this case. On sanctions alone, the court held a two-day hearing and has scrutinized the pleadings and exhibits totaling approximately io,000 pages. It has also reviewed the rest of the record. The court concludes that the FDIC has lied to Charles Hurwitz, the public, and this court. Over the past ten years, the suit here and in Washington — has cost the taxpayers in whose name these people acted tens of millions of dollars. Naturally, the agencies cost the defendants millions, too. Hurwitz is not content with the torture stopping. He has sought compensation.

    The lawyers — retained as well as employed — whose acts are described in this opinion have violated standards of the bar in things from simple lack of candor to the court all the way to false testimony. These lawyers were agents — high or low — of the American people. As lawyers and as public officers, one phrase describes them: breach of faith. The lawyers have persisted in taking wholly false positions on the facts and law. Sometimes a client does not tell a lawyer the truth, but here the FDIC’s parades of lawyers knew the facts — the absence of fact. When a lawyer makes arguments that are disconnected from both the facts that he knows and the law, the reason is either gross incompetence, dishonesty, or both. Sanctions is the answer.

    The court will acquiesce in not sanctioning the lawyers individually. In part, it will abstain in the expectation that licensing authorities and public integrity officers will meet their responsibilities.

    Inherent Power.

    Courts govern their own affairs.’ When parties exploit the judicial process, a court may sanction conduct beyond the reach of other rules.’ When a party engages in sanctionable conduct, the court may shift the entirety of an aggrieved party’s expenses to the offending party.

    The FDIC says that the court may exercise this power only when a party commits fraud on the court. It says that it has not, despite its buying another agency, scheming with special-interest groups, federal agencies, congressional representatives, and the Administration, bringing meritless suits in two courts for an amount it could not explain, and lying about it all. It is hard to conceive how much more egregious the FDIC’s conduct should have been to merit sanctions under the FDIC’s view of the court’s power.

    The FDIC admits that it “made no effort whatsoever to obtain discovery, take depositions or otherwise prosecute its claims before this Court” and that its suit here was a “protective one.”‘ Suits are not place holders. No private litigant would be able to bring identical actions in different courts. In addition, plaintiffs must pursue cases that they bring or suffer the consequences. The government — despite its conduct to the contrary — is not above the law.

    The FDIC says that this court has no authority to sanction it for the OTS action and that the administrative case was not an issue before this court. The FDIC, however, made that case the business of this court by amending its complaint and making its recovery here derivative of the administrative claim. In addition, the OTS suit was not separate. The FDIC bought OTS, dictated what claims OTS would bring, and exploited both forums to make Hurwitz feel pain. OTS’s participation in the FDIC’s case was critical. It is well established that the court may sanction a party for abuses occurring beyond the courtroom…Although much of the FDIC’s conduct merits punishment, the sanctions that are imposed are only done as an equitable adjustment of the burden of this misbegotten case.

    A. Conduct.

    The FDIC’s improper purpose in suing Hurwitz is objectively ascertainable. The agency wanted to placate environmentalists and politicians, not redress the failure of the thrift. The court agrees with the observation of Congressman John T. Doolittle of California: “This case is government corruption at its worst.”

    Besides suing for an improper purpose, the FDIC’s sanctionable conduct includes:
    Filing imaginary claims, unfounded in law and fact. Objectively and subjectively, the FDIC sued in bad faith;

    Suing despite its extensive investigation that concluded that Hurwitz was not guilty of actionable conduct;
    Engaging in abusive investigation that in at least one instance involved an FDIC attorney asking a witness to “rethink” his testimony to avoid a personal suit;
    Pursuing this case — in the face of its and its internal and external lawyers’ opinions about the lack of merit — either to extort environmental concessions or appease those in and out of government who wanted those concessions or even simply to look like it was doing something about a large loss;
    Trying to delay the case at each opportunity;
    Failing to pursue its claims and seek meaningful discovery;

    Trying to thwart nearly all depositions of its officials;
    Repeatedly obstructing documentary discovery, playing a shell game with its own, the OTS’s, and United Savings’s documents, hiding documents, withholding documents based on unfounded or waived privileges, disobeying discovery orders, and lying to the court; •
    Trying to avoid dismissal on the merits by amending its complaint and leaving only an unripe — but equally bad — claim;
    Suing here first and then instigating, paying for, and supervising — and hiding its role in — a second proceeding that covered identical facts as the case here and would have given the FDIC the recovery;
    Trying to hide its illegal arrangement; and

    Engaging in an open war of attrition…”

    MAXXAM Awarded Over $72 Million In Lawsuit Against FDIC

    On August 24, 2006, Judge Lynn N. Hughes, United States District Court for the Southern District of Texas, ordered that the Federal Deposit Insurance Corporation (FDIC) pay MAXXAM Inc. over $72 million dollars in sanctions as measured by legal and other expenses incurred during its 10-year legal battle against the regulatory agency. The judgment represents the largest sanction against the Federal government and incorporated MAXXAM’s requests that MAXXAM be reimbursed its reasonable costs and attorney’s fees.
    At the time, J. Kent Friedman, General Counsel of MAXXAM, stated “The ruling is appropriate because the FDIC wasted taxpayer dollars by pursuing politically motivated litigation that it knew was meritless. The actions by the FDIC represent illegal and shameful government behavior and this is now the second federal judge who has determined that.” MAXXAM filed a motion to sanction the FDIC for filing a lawsuit that the FDIC’s own legal division’s internal analysis concluded had “at least a 70 percent” chance of failing on pretrial motions and, if it survived, the chances of prevailing on the merits were “marginal at best.”

    The FDIC’s standards call for at least a 50 percent chance of success before initiating legal action. The FDIC ignored that standard and proceeded with a frivolous lawsuit anyway. Judge Hughes stated in his ruling, “By now, Hurwitz has spent nearly twenty years defending himself against the government. This court cannot restore completely the damage that this case has done to him personally.

    It can, however, make the government pay for its betrayal of the public trust, its vindictive political assault on a private citizen, and part of the economic loss that it has caused him.” In addition to the FDIC lawsuit, the FDIC paid millions to the Office of Thrift Supervision (“OTS”) for the OTS to initiate an administrative action against MAXXAM, Charles Hurwitz and others. The OTS’ litigation commenced in December 1995 seeking approximately $821M in restitution and civil money penalties. The OTS action was essentially a second lawsuit by the FDIC. It had the effect of transferring the FDIC’s unlimited financial resources to the OTS in order to finance the longest and most expensive trial in the history of the OTS lasting 110 trial days (including 100 for the OTS to present its case) spread over more than two years.

    OTS Administrative Law Judge Arthur Shipe issued a 230-page decision in September 2001 in which he recommended that all charges against MAXXAM and Mr. Hurwitz be dismissed. In the wake of Judge Shipe’s opinion, the OTS settled with MAXXAM and Mr. Hurwitz in October 2002 for $206,000; the respondents made no admission of wrongdoing. The settlement allowed MAXXAM and Mr. Hurwitz to cease further legal expenditures on their defense in a fashion that represented a clear victory. It also caused the FDIC to drop its related lawsuit against Mr. Hurwitz in November 2002.

    “I am pleased by the ruling of the Court and feel redeemed not only for myself but for the company and our employees. This ruling puts to rest a very long process of defending ourselves against a government agency’s erroneous claims and the subsequent pursuit to hold them accountable,” Charles E. Hurwitz, Chairman and CEO of MAXXAM, said at the time. “This pursuit is something no individual should be subjected to. Fortunately, we had the resources to fight the case and prevail and are now ready to move on.”
    MAXXAM Contributes to Elected Officials Who Then Try to Curtail S&L Trials

    May 1, 2000 Contact: Darryl Cherney, Environmentally Sound Promotions 707/923-4949. www.jailhurwitz.com. Documentation available upon request.

    Charles Hurwitz, Chairman of MAXXAM, Inc. and controlling officer of a Texas savings and loan that failed in 1988, made campaign contributions to elected officials who then pressured banking regulators to curtail court actions against him. In an emerging scandal reminiscent of the Keating Five, House of Representative members Peter King (D-NY), Tom Delay (R-TX), and Ken Bentsen (D-TX) all received significant contributions from MAXXAM, according to Federal Elections Commission records. Senator Kit “Junk” Bond (R-MO) and former Federal Deposit Insurance Corporation (FDIC) Chairman William Isaac joined the three congressmen in a coordinated attack on banking regulators from the Office of Thrift Supervision (OTS) and the FDIC. The Hurwitz Five–King, Delay, Bentsen, Bond and Isaac–are attempting to intimidate regulators to prevent the very last of the S&L trials from reaching conclusions.

    The FDIC and the OTS filed separate court actions in 1995 against corporate raider Charles Hurwitz. The OTS action named MAXXAM Corp. and various subsidiaries as additional defendants. The OTS administrative law hearing concluded this year and currently awaits Judge Arthur Shipe’s recommendation. Director of the OTS, Ellen Seidman, will review the judge’s recommendation and issue a final determination. OTS lawyers are asking for a ruling that MAXXAM and Hurwitz pay $832 million in restitution for their roles in the $1.6 billion failure in of United Savings Association of Texas (USAT).

    Newly-released documents obtained under the Freedom of Information Actreveal that each of the Hurwitz Five wrote menacing letters to either theFDIC or the OTS on behalf of Hurwitz.In the case of former FDIC Chair William Isaac, the tone was hysterical. The emergence of Isaac is particularly disturbing to taxpayer advocates, environmentalists and steelworkers who have battled Hurwitz over the last fifteen years. Isaac, a super-lobbyist who runs the Secura Group, provides current FDIC Chair, Donna Tanoue with an ominous example of the revolving door between the public and private sector. His very presence signals that the lush life awaits banking regulators if they play their cards right while in public office.

    This improper contact heightens concerns that the FDIC or OTS may settle out of court for pennies on the dollar, allowing Hurwitz to escape serious penalty. Hurwitz additionally hired two other former high-ranking banking regulators–John Douglas, former General Counsel of the FDIC, to represent him in FDIC v. Hurwitz and former Federal Home Loan Bank Board (OTS’s predecessor) Chief Enforcement Officer Rosemary Stewart to perform as an expert witness in OTS v. USAT et al. Much of the S&L debacle of the 1980’s occurred under Stewart’s watch, prompting analysts to call the S&L scandals “Rosemary’s Baby.”
    Hurwitz and MAXXAM bankrupted USAT while profiting from its failure. Using the S&L’s plundered assets, Hurwitz leveraged junk bond acquisitions of Pacific Lumber and Kaiser Aluminum using notorious criminal broker, Michael Milken, to engineer the deals. Activists have been calling for assett seizure disgorgement of MAXXAM’s ill-gotten gains, and criminal charges to be pursued against Hurwitz..
    Contributions referenced above were made as follows according to www.tray.com: * Charles Hurwitz donated $1000 each to Reps. King and Bentsen (1999). * MAXXAM Properties Pres. James Noteware donated $1000 to Rep. Delay (’99). * MAXXAM-connected Sallie Mae PAC donated $9500 to Rep. Delay. (98-99). (Dr. Barry Munitz, CEO of the failed S&L, MAXXAM’s VP for 9 years and Hurwitz’s former co-defendant sits on the Sallie Mae Holding Co. Board and himself contributed $4000 to the Sallie Mae PAC). * William Diefenderfer, MAXXAM Lobbyist and Board member of Sallie Mae Holding, contributed $1000 to Sen. Bond (1998). * William Isaac contributed $1000 to American Bankers Association PAC who in turn contributed $3000 to Rep. King. Isaac is a member of the American Bankers Assoc. and a columnist for American Banker.

    Faces In The News Hurwitz Hands Off At MaxxamRuthie Ackerman,06.04.07, 1:00 AM ET

    To put it lightly, the last few decades haven’t been kind to Charles Hurwitz.

    Now the daddy of controversial business battles is ceding a measure of control of his conglomerate Maxxam to his son Shawn, who will assume the post of president. The elder Hurwitz will remain CEO and chairman of the board.

    Hurwitz, 66, is arguably handing over a sinking ship, with the Friday announcement coming two weeks after the company, which has interests in logging, real estate and horseracing, reported a wider first-quarter net loss of $12.3 million, or $2.33 a share, on $28.7 million in revenue.

    In the mid-1980s, the Texas-born corporate raider earned a spot on the list of the most vilified businessmen of the last quarter century when he bought Pacific Lumber, owner of the majority of privately held old-growth redwood forests in the U.S., and the company promptly filed papers showing it intended to harvest them.

    Stopping the logging became a cause celebre for the environmental movement, and in the media glare that followed, Hurwitz was cast in the role of arch villain. A Web site called jailhurwitz.com was started. Hurwitz was physically assaulted. Woody Harrelson was arrested at a demonstration. And Julia “Butterfly” Hill gained national attention for the cause when she spent two years living in a 200-foot-tall redwood she named “Luna.” Eventually, she paid Maxxam $50,000 to spare the tree.

    In 1999, the dispute was settled when Pacific Lumber sold 5,600 acres of redwoods to the state and federal governments for more than $360 million. The deal also called for logging restrictions to preserve the 200,000 acres that weren’t purchased.

    However, Hurwitz was still embroiled in a bizarrely related dispute with the Federal Deposit Insurance Corporation. The FDIC filed suit against him in 1995, blaming him for the $1.6 billion collapse of United Savings of Texas in 1988. Hurwitz had owned a quarter of the bank’s parent company, United Financial Group.

    In a 2005 ruling in Hurwitz’ favor, a federal court said that the government had brought the suit to engineer a financial loss for the businessman that would force him to give up the redwood forests.

    Hurwitz was awarded $72 million by the court in the largest penalty ever assessed against a federal agency.

    Hurwitz may have won in court, but the once-feared corporate raider’s business fortunes have been unarguably diminished.

    On Jan. 20, Pacific Lumber filed for bankruptcy, blaming strict regulations for unfairly limiting its logging profits.

    Hurwitz got in more hot water in California on Feb. 21, when he was placed in handcuffs at the Arcata/Eureka airport after trying to go through the commercial passenger gate. When Hurwitz was stopped, he allegedly had some words with the sheriff’s deputy who was called by an airline employee.

    It was also revealed in April that two former California state forestry officials sued Pacific Lumber Co. in December, alleging that the company didn’t live up to the deal it struck with the state over the redwoods, essentially defrauding the state of California out of tens of millions of dollars.

    Hopefully, Shawn Hurwitz will have better luck than his father.

    The elder Hurwitz has tangled with the authorities throughout his career. After forming a small brokerage and investment company, he bought Summit Insurance Co. of New York in 1970, only to be sued shortly afterward by the Securities and Exchange Commission for allegedly manipulating Summit stock. He got off, but Summit went bankrupt shortly thereafter and was liquidated in 1975.

    Hurwitz was then charged by the acting insurance superintendent of New York with insurance fraud for improperly shuttling funds between holding companies. He settled for $400,000.

    He took control of McCulloch Oil Co. in 1980, renaming it MCO Holdings. Simplicity Pattern Co. was his next move, and after taking cash out of its pension plan and selling its assets, he renamed the company Maxxam.

    ———————————————————————————————————–

    A brief history of how the FDIC throws its weight around…

    Driven to New Directions

    As the economy improved in the 1990s, far fewer banks and thrifts were in distress, but there was a lag of two or three years before downsizing of the regulatory machinery began. In 1995 the RTC, by sunset provision, handed its matters over to the FDIC and closed shop. And at about that time, the handful of banking regulatory agencies, particularly the FDIC, began scaling back enforcement actions and lawsuits for the most basic of reasons–a better economy and fewer troubled banks and thrifts.

    Around then Ricki Tigert Helfer came in as FDIC chairwoman and set about cutting the staff by 36 percent. And tried to rein in the regulators. She brought in William Kroener, an experienced lawyer in the field from Davis, Polk & Wardwell, as general counsel.

     

    They inherited a legal staff of 1,300 lawyers, which included those brought over from the defunct Resolution Trust Corp. Of the total, 160 lawyers handled professional liability suits against officers and directors, as well as lawyers and accountants. (Now there are reportedly just 19 of them.) Helfer and Kroener instituted tighter reviews of proposed cases, and winnowed out many of those inherited from the rtc. Kroener points to one in which the targets put a $200,000 offer on the table and the agency declined, dropping the case instead, “because it had no merit.”


    Early on Kroener even instituted an open-door policy in response to complaints he was hearing from lawyers who felt their clients were being pursued unjustly and unfairly. But he and Helfer had taken over an agency that was, in many ways, a staff-driven freight train. Apparently, in the face of reductions in force and fewer good cases, some felt the need to justify their jobs by making cases when they shouldn’t have.


    One apparent example came to light in a federal criminal trial involving a prominent state senator in Virginia and his son, who own and run a small-town bank. (See “The Zealots and the Senator,” ABA Journal, Oct. 1998, page 60.) U.S. District Judge Henry Morgan threw out the case as soon as the prosecution completed its presentation.

    In February he ordered the Department of Justice and the FDIC to pay the defendants $570,000 to cover their legal fees and costs because the prosecution was “vexatious.”

    That judgment was the first successful one under the so-called Hyde Amendment of 1997 that calls for the government to pay when a case proves to be “vexatious, frivolous or in bad faith.” The judge found that the FDIC had gotten the U.S. attorney to pursue a criminal matter based on evidence that hadn’t been strong enough for the agency’s initial civil complaints through administrative proceedings. He ordered the FDIC to pay a third because the two agencies acted “in concert.”


    The judge found so many dirty tricks involved that he noted some evidence that the FDIC might have been even more than vexatious and acted in bad faith. The FDIC regional counsel pushing the case wrote several memoranda that came back to haunt him in court. In one, he said the DOJ wouldn’t take such a case built on a minor technical violation, except that the target, owner of a small-town bank, also was a well-known state senator. At one point–a fact not brought out in trial or noted by the judge–a witness called before FDIC counsel for a sworn statement became spooked by the questions. He said he wanted to have his lawyer present. He was cajoled into not doing so.


    “[Y]ou are not a focus of the investigation; that means you are not affiliated as a director and officer, somebody managing the bank,” the witness was told by then-FDIC regional counsel John J. Rubin from the Atlanta office.

    “We do not have jurisdiction over you.” What Rubin did not say was that just three months earlier the FDIC had named the witness as a target in a criminal referral to the U.S. attorney. Judge Morgan determined that the FDIC wanted to punish the bankers, not regulate them, and blasted as inexperienced the regional counsel, Richard Fraher, who pushed the case as “an overzealous bureaucrat.”


    “More difficult to understand,” the judge wrote in his opinion, “is the failure of the many layers of supervision between [Fraher] and indictment to understand and appreciate the unreliability [of the government’s key bit of evidence] and the weakness of any other evidence of wrongdoing.”

    The judge was pointing a finger directly at a culture of abuse in the agency. It was the way, in too many instances, the business of regulating banks and thrifts was conducted. The reasons are many and complex. They go back decades. They resulted from good people working with bad law and bad people working with good law.


    “I don’t blame them for taking that first look at me,” says Glen Garrett, the blue-jeaned banker in small-town Missouri. “But there came a time early on when they knew better. And they didn’t stop.”

    Reining in the Regulators


    Judges blast banking agencies for ‘bad faith,’ overzealousness in numerous cases.
    Banking regulators have handled thousands of cases since the savings-and-loan and banking crises of the 1980s. They point to a high winning percentage not only with the two administrative law judges in the Office of Financial Institution Adjudication–a process criticized by defense lawyers who say the aljs rule almost always for the government–but also in the federal courts.

    “We have a very high success rate in the appeals courts, and I attribute that not to the fact that the bench is predisposed to decide in our favor, but instead to the fact that we do our cases carefully, we craft our arguments carefully,” said William Kroener III, general counsel at the time for the Federal Deposit Insurance Corp.


    Critics respond that the FDIC has lost two hugely significant cases in the U.S. Supreme Court that prevent it from using federal common law instead of state law, particularly concerning the statute of limitations and standard of care. O’Melveny & Myers v. FDIC, 512 U.S. 79 (1994); and Atherton v. FDIC, 519 U.S. 213 (1997). And administrative appeals go straight to the federal appellate courts based solely on the administrative record –a record built in a review system some critics claim is corrupt by design.

    The FDIC also has pulled some cases from federal District Courts, or revived them after losing, by paying the Office of Thrift Supervision to handle them administratively. Doing so avoids juries, and stricter rules and procedures as well as a stricter statute of limitations–and puts the cases before the friendly ALJs.

    “It all has an Alice-in-Wonderland quality,” says banking lawyer Arthur Leibold.


    The banking agencies have recovered a lot of money from crooks and grossly negligent directors, officers and professionals such as lawyers and accountants who managed the affairs of thrifts and banks.

    But critics contend that the regulators, having already rooted out the bulk of the past wrongdoing, have aggressively pursued borderline, questionable cases–sometimes against innocents–to justify their continued existence. In reality, there is no practical way to determine how many actual innocents settled by paying money, in sums both small and huge, and agreed to leave the banking industry, just to walk away from the burdens of cases that never should have been brought.

    * * * * *
    Early Pattern in Minnesota When Paul Oberstar tried to buy a troubled bank in Minnesota, the FDIC moved to prohibit him from doing so. The sanction was backed by an administrative law judge’s recommended decision that said Oberstar “lacks the competence and integrity to have a controlling voice in a troubled bank” because he used a proxy. But the 8th U.S. Circuit Court of Appeals ruled that the FDIC was wrong when it determined Oberstar had improperly taken control of the bank through a proxy from the previous controlling shareholder, who had been imprisoned for fraud. Oberstar v. FDIC, 987 F.2d 494 (1993).


    The appeals court also accused the FDIC of abuse and harassment for tacking on a $125,000 civil money penalty against Oberstar just five days after he appealed the administrative ruling. The appeals court noted that the money penalty was improper because “we had acquired jurisdiction. Although the agency gave the [civil money penalty] a different docket number, that was but a thinly disguised attempt to avoid the jurisdiction of this court.”


    In a footnote, the appellate court stated: “We are concerned this is not an isolated occurrence.” It cited another case from the 5th Circuit in which it had ruled that an increased penalty by the FDIC after judicial remand “looks to us uncomfortably like judicial vindictiveness.”


    One ALJ Slams the FDICDuring 40 days of hearings before an administrative law judge, the FDIC kept changing its allegations against Beverly Orloski for her work as head of the mortgage department at Bay Bank Valley Trust in Massachusetts. They left out the one that fit best, her lawyer says. She probably was guilty of a bad romance. The FDIC didn’t back off of its attempt to prohibit her from ever working again in the banking industry until Judge Arthur L. Shipe issued a 237-page recommended decision that accused the agency of manufacturing the case against her. In the Matter of Jeffrey Adams, FDIC 93-91e.


    Several others named in the action, including a commercial loan officer who was Orloski’s boyfriend, settled with the agency. But Orloski fought back. Soon after the ALJ’s unusually lengthy recommended decision, the FDIC entered a single-sentence dismissal order. That meant it wouldn’t have to send the ALJ’s decision along with its yearly report to Congress. The agency agreed to pay Orloski’s fees and costs for the three-year battle in an arrangement based on the Equal Access to Justice Act guidelines.

    “I’ve never tried a matter in such crazy circumstances,” says Thomas A. Kenefick III, Orloski’s attorney. “We had 40 days of hearings in which you’d go for two weeks then break for a month. You have to learn it all over again.”


    But even that was made more difficult, he says, because when testimony and evidence would prove Orloski did no wrong, “They’d just shift the rules.” The administrative law judge put it this way: “The precise allegations against [Orloski] evolved during the course of the proceeding in response to the evidence presented by [her] in her defense and other matters.”

    The ALJ accused the agency of using its proposed findings of fact to “screen from view” evidence that favored Orloski, and noted that “some of the witnesses [bank officers and staff] in this proceeding strained their credibility by being overly helpful to the FDIC and unduly hostile to [Orloski].” Not only should Orloski not be banned from banking, Shipe wrote, she would “on the contrary, be a highly valuable and trustworthy employee to any such employer.”


    The FDIC’s general counsel at the time, Kroener, said of the now-closed case, “That’s the only instance where the ALJ said, ‘You guys didn’t prove it, no way, not at all.’ ” Several defense lawyers disagree. They say there are other cases in which that particular ALJ found in favor of individuals, though never in favor of financial institutions themselves.


    Making Rules and a ScapegoatA former chief economist at the Federal Home Loan Bank Board spent a lot of money over several years defending himself against what a federal appeals court decided was in reality “a back-handed way” by the Office of Thrift Supervision to create a new rule. Kaplan v. OTS, 104 F.3d 417 (D.C. Cir., 1997). Donald Kaplan was on the boards of both the Enstar Group holding company and its subsidiary, American Savings & Loan Association. When a decision that involved the two boards led to a huge loss to the thrift, the OTS brought administrative actions against Kaplan and others.


    The OTS, successor to Kaplan’s former employer, the FHLBB, sought to remove him from both boards and demanded $500,000 in restitution and a $183,600 civil money penalty. While there was no rule against being on two related boards, the OTS arguments implied as much. Administrative Law Judge Shipe’s recommended decision called for dismissal of the charges against Kaplan, but the OTS’ acting director rejected it.


    The appeals court determined that the acting director’s decision, “although based on unreasonable judgments which could be characterized as arbitrary and capricious, is probably better described as lacking substantial evidence–in our view any evidence.” The court said the OTS “has made Kaplan something of a scapegoat.”

    Comments Off on FDIC continues to be hyper-aggressive in using lawsuits to punish adversaries whether the agency has a case or not

    Government watchdogs’ actions show a lot of bark but little bite

    July 8th, 2013

     

    By Dwight Haskins.

     

    The public needs for the Merit System Protection Board and Office of Special Counsel to perform their duties in upholding the Whistleblower Protection Enhancement Act.

    The banking crisis need not have caused such great harm to the public as it did, and the FDIC Insurance fund need not have become insolvent necessitating emergency measures to be taken. Had there been a viable whistleblower protection process within the federal government much harm to the public could have been avoided.  What the FDIC, OTS, OCC and Federal Reserve got wrong shows why there is a need for the Consumer Financial Protection Bureau to protect the public by taking action against harmful practices that the other agencies ignored.

    While the FDIC will argue otherwise, indisputable evidence to support this shocking admission has been available since the financial crisis provided clues in 2006 about the upcoming calamity. A senior financial analyst at the FDIC provided literally dozens of analyses during the period leading up to the financial crisis with clear warnings which provided to top officials in a position to act before the banking crisis took shape were ignored and then “hidden under the rug” due primarily from the contempt and dislike key officials had for a senior analyst in charge of monitoring the largest banks.  Secondly, top officials in key roles found it easier to bury the findings than to be subject to questioning from Sheila Bair, a demanding and highly inquisitive chairman of the FDIC.

    For years, beginning in 2006 until 2010, the senior analyst took his concerns to the NTEU, the nation’s second largest public employee union vested with protecting employee rights at the FDIC and many other federal agencies.  Revisions to federal statutes in 1994 authorized public unions for the first time to enforce whistleblower protections by representing bargaining members. Employees who sought assistance from their union for whistleblower retaliation or reprisal would be taken up by the public unions if one did not elect to seek their own lawyer or file a complaint directly with the Office of Special Counsel.

    Unfortunately, the NTEU president and others were ill-equipped to handle whistleblower complaints at the FDIC.  The union officials informed the analyst that they “did not handle whistleblower cases.”  Both the union steward and chapter president at the FDIC brushed off the analyst’s complaints, falsely believing the union lacked authority to address whistleblower retaliation or reprisal in the workplace.  Despite the analyst remaining vigilant with attempts to convince the union representatives at the FDIC that the union had authority to represent employees similar to that of the Merit System Protection Board and Office of Special Counsel,  the NTEU representatives remained unconvinced and provided the analyst with no assistance relating to the protection of his whistleblower rights.

    Surprisingly, given the magnitude of the harm caused by not having the NTEU, the Merit System Protection Board or the Office of Special Counsel execute their mandated duties, no government officials took the time to meet with the analyst to get a basic understanding of the whistleblower’s complaint as to what went wrong at the regulatory agency.  As such, critically important accusations asserted by the analyst regarding the breach by regulatory authorities has been conveniently ignored and unaddressed.

    While we do not expect government officials or members of Congress to investigate trivial matters, the scope and harm caused from the banking crisis is of such size and importance, most Americans would agree that a further independent review of what went wrong within the regulatory agencies is vital if we are to prevent a similar crisis in the future.  Reforms made to the law by the Frank-Dodd Act do little to address the cracks found in the foundation for protecting agency regulators who have a just and moral duty to “blow the whistle” in order to protect the public.

    Congress appointed the Financial Crisis Inquiry Commission to investigate what caused the financial crisis.  The commission, albeit subject to much political maneuvering and controversy,  found “the crisis was preventable had regulators been better trained and prepared to detect growing systemic risks and had they better communicated with one another amongst all of the regulatory agencies.”  The commission never identified what role whistleblowers played in trying to raise “red flags” for intervention by regulatory agencies. Consequently, the effectiveness of whistleblower protections was never reviewed.

    Congress only addressed the issue partially when it enacted the Whistleblower Protection Enhancement Act in later 2012. The new Whistleblower Protection Enhancement Act provides protections for the FDIC analyst and other whistleblowers at other regulatory agencies only if the Office of Special Counsel and Merit System Protection Board elect to perform their duties and enforce the law. The jury is still out since both of these quasi-judicial bodies that serve as the nation’s government watchdogs has had leadership willing to ignore politics when dispensing justice.

    An investigation of the FDIC analyst’s case will show there is a grossly deficient whistleblower protection scheme in place throughout his bank regulatory agency, which caused incalculable harm to the American economy, not to mention widespread disruptions – financial and otherwise – to millions of families due to the upheaval brought about by falling home values, high unemployment, and economic instability.

    It is sad to think that a great deal of this upheaval could have been lessened had there been a functioning whistleblower protection system for government employees and regulators. By not having an effective system in place to report and put a stop to corruption, cronyism, unlawful practices and exorbitant waste of taxpayer funds has taken a financial and psychological toll on society that will likely carry over to future generations due to no fault of their own.  As many past and potential whistleblowers have theorized, it has since become more widely known, the Merit System Protection Board (MSPB) and Office of Special Counsel (OSC) allowed themselves to be captured by the government agencies they are mandated to monitor.  Potential whistleblowers have been led to a trap by the government providing false hopes and an illusion that they will be protected by law for their willingness to report on egregious practices that are harmful to government enterprises and to society at large.

    Protected Disclosures Made to the Chairman, Ombudsman and Inspector General indicates Haskins is a Whistleblower

    The FDIC analyst blew the whistle on the following improper actions by his managers:

    1. abusing their authority by not informing the Chairman and other top executives of the analyst’s analyses and conclusions with warnings of an impending crisis
    2. violating age and race discrimination laws in terms of personnel selections and performance reviews
    3. violating the agreement to share information with other regulatory authorities
    4. deceiving Congress in hearings on oversight of Washington Mutual and other failed banks by not reporting information they were aware of (hiding important information)
    5. enabling Citigroup to violate the law by allowing the bank to pay “golden parachutes” to departing executives after the bank received and had outstanding TARP funds provided by the U.S. government (Haskins’ supervisors approved the application by Citigroup)
    6. deceiving the public by showing inaccurate and misleading information regarding the health of the insured banks and viability of the insurance fund (purposely not designating troubled banks as such as that would require more stringent regulator action to be taken, including taking a bank, resulting in losses to the FDIC insurance fund
    7. allowing large banks to violate GAAP and minimal accounting and regulatory reporting standards to regulatory authorities, including the FDIC and SEC
    8. allowing a handful of troubled banks with poor “safety and soundness” examination ratings to acquire failing banks
      1. it was in violation of FDIC policy to allow banks with poor examination ratings and poor LIDI ratings to acquire failing banks since that is “doubling down on risks” that can lead to yet further loss to the insurance fund by creating larger loss exposure should a trouble bank acquisition cause the combined company to later fail
    9. compromised the public’s need to know so that action could have been taken sooner to prevent the financial crisis (depositors as well as investors were harmed when stock prices plummeted or banks failed and stock value was eliminated altogether)
    10. violating both OPM regulations/statutes and formal union contract and memorandum with the union following arbitration — by ignoring the merit process and by ignoring experience and qualifications of candidates
    11. manipulating personnel records to show individuals assigned to “Washington, DC” when those individuals were not assigned to Washington, DC and resided at their duty stations (violation of OPM regulations/statutes and collective bargaining agreement pertaining to merit plan)
    12. using “work in place” without a business need to pre-determine or pre-select candidates, thus skirting OPM regulations/statutes and the merit system plan
    13. violating formal, written agreement with the union following the arbitration hearing decision in February 2010 regarding the analyst

    13 a   The FDIC analyst had his principal duties as the ‘Large Bank Oversight Manager” taken away once he blew the whistle in 2007 and 2008.  Adding insult to injury, the analyst was forced to apply for positions that reported to the manager position the analyst was forced to vacate.

    13 b  A June 2010 arbitration agreement requires FDIC selecting officials to show they reviewed applications and other materials submitted by all candidates on the best qualified list. It was no longer permissible for selecting officials to delegate this task to the interview panel or to others. Furthermore, the selecting official is to make the selections and not the interview panel. The analyst’s supervisors ignored the agreement as all three admitted in an EEO affidavit that they did NOT consider the analyst’s application and materials for vacancy decisions reached in the second half of 2010 and in 2011.

    • violating sound “internal audit controls” by allowing large bank examiners and analysts to “back date” LIDI risk ratings assigned to large bank
    • continuing a highly orchestrated scheme of retaliation and reprisal against analyst for his willingness to provide protected disclosures to authorized officials at the agency, as evidenced by:
    1. taking away analyst’s other key duties, responsibilities and participation on working groups (2010)
    2. unwarranted downgrade in analyst’s performance evaluation; (2010)
    3. Providing analyst with an unwarranted, formal “reprimand” for disclosing the egregious practices by his supervisors during an “All Hands” division meeting on September 20, 2010.  Analyst was notified the following day that he would be reprimanded for airing his complaint during the meeting attended by the top agency officials
    4. Serving analyst with a formal reprimand one day after he filed his EEO complaint
    5. subjecting analyst to numerous non-selections despite being the most highly qualified candidate (2009 and 2010)

    Whistleblower protections exist only on paper

    It would be better and more ethical for the government not to offer whistleblower protections if the MSPB and OSC are unable to deliver on the protections proclaimed by the Whistleblower Protection Act statutes.  Whistleblowers more often than not find themselves vulnerable to reprisal and retaliation after making their disclosures. These citizens of good conscience sacrifice their careers and livelihoods in many cases, causing immense pain and suffering to individuals and families.  They do not need another obstacle to climb in terms of lost incomes and need to hire lawyers to combat a system that is set up to hinder their best intentions to make the government more efficient and to protect the public.  The inability of the government to deliver on its promise to protect whistleblowers only makes these individuals more vulnerable and subject to reprisal and retaliation.

    Regrettably, the FDIC analyst, perhaps, is one of a cast of hundreds with such a strong conscience and will to do what is right in the interest of society, who have learned the hard way that just because the law states whistleblower reprisal and retaliation is a crime, there is no willingness by the public unions and the two agencies charged with overseeing the process to consider such actions a crime.

    The public employee unions already got what they desired (added members and respective union dues) from amending the law in 1994 to represent potential whistleblowers. Both watchdog agencies, the MSPB and OSC, are so cavalier in the way they treat whistleblowers and so eager to please the agencies, they protect the wrongdoers (defendants) instead of the complainants.

    The agencies control the cards by virtue of their vast resources, whether it is monetary wealth, access to lobbyists and to the courts, or connections with the media who write about government corruption and the like.  The agencies have past and present affiliations with those at the helm of non-government watchdog organizations which makes it that much more difficult for a whistleblower to prevail in any complaint.

    Alliances and special arrangements and the “revolving door” between MSPB and the agencies it oversees shows the MSPB has lost its moral authority

    Many of the large, influential government agencies have arrangements, sponsorships and other relationships with the big law firms in the district which decreases the odds for a whistleblower to prevail since the best legal representation is not available.  Combine this with the revolving door whereby administrative judges, for example, at the MSPB almost always find it more lucrative to latch on to a position at a federal agency, one can see how the MSPB has allowed itself to become captured by the agencies it oversees.

    The merit protections to be provided by the MSPB take a back seat to justice illustrated by a number of cases whereby the whistleblower has been denied justice by the MSPB.  The inability by the MSPB to perform its duties can be ascertained by any number of measures one uses to gauge the effectiveness of the MSPB.

    For example, the FDIC senior financial analyst had an appeal request pending for 18 months (since July 2011) for a full MSPB hearing of what appears to be a clear example of misdoing by the board.  One need not be a lawyer to readily see how the MSPB made an arbitrary, capricious decision regarding the analyst’s’ whistleblower reprisal complaint.

    How the MSPB can get away with the gross negligence it exhibits by its own actions, leading to a clear and unambiguous  misapplication of the law by an MSPB administrative judge ought to result in moral outrage.  Congress needs to carefully scrutinize the actions being taken by the MSPB starting with the analyst’s’ case given the importance his allegations which show how the justice system can go so far astray.

    On September 28, 2012, the MSPB informed the analyst it had denied his appeal request.  Unbelievably, the MSPB (board) made this decision after sitting on its hands for 18 months following the initial misapplication of the law by the administrative judge in July 2011.   The analyst most likely would have prevailed with his complaint had the MSPB (board) only waited until October 12, 2012, the day the board enacted wholesale changes to its regulations. It stretches the imagination to realize that the changes made by the MSPB following that date abolished its highly controversial practice allowing an agency to present its affirmative defense first and to deny a whistle-blower (complainant) altogether to have a hearing.

    In other words, had the board delayed its action by waiting another two weeks, it would have had to guarantee the analyst’s request for a hearing.  The MSPB denied his request for a hearing out of fear from the expected backlash from the public once the complaint became public knowledge. One might expect some repercussions from the public’s outrage once the public learned how the FDIC and other regulators bungled their role of protecting the public from the worst financial crisis since the Great Depression.  Should the public become aware of the mishandling by the federal government during an election year, by seeing how the FDIC and MSPB dropped the ball, there is no telling how damaging this could be to President Obama’s efforts in being re-elected.

    It is not possible to have any less vivid illustration to make a case for reforming government and need to enhance whistleblower protections than by seeing how top agency officials were able to ignore over a full economic cycle nearly all the warnings provided by a career senior financial analyst charged with responsibility with overseeing the risks and financial condition of the nation’s largest banks.

    A review of this senior analyst’s disclosures he provided to the Chairman, Ombudsman, and Inspector General provides the fullest account supported by hard evidence to have surfaced since the banking crisis to show the urgent need for better oversight of our government agencies.

    The public would be incensed to voice their displeasure in knowing that this diligent analyst was purposely denied by the FDIC and MSPB with whistleblower protections mandated by law.  The story gets juicier in knowing that two consecutive Ombudsmen at the FDIC began investigations of the analyst’s’ complaints, but mysteriously resigned unexpectedly before either could complete their investigations.

    Both individuals contacted the analyst before they exited to inform him that they appreciated what Haskins was doing and supported his complaints. The chief of the Internal Audit section resigned from that position to transfer to another area once the analyst demonstrated the need for this individual to commence an investigation of the affairs reported by this analyst.

    The two top officials (Deputy Director John Lane and Associate Director John Corston) charged with oversight responsibilities over the analyst’s role and over the large bank branch exited the FDIC unceremoniously.  One might bet that these key officers “became expendable” once the top brass at the agency realized neither officer could be compelled to testify in any hearing relating to the analyst’s complaints which might incriminate the FDIC should they leave government service.

    Inexplicably, the MSPB bought off on the arguments raised by the FDIC lawyer – previously an administrative judge at the MSPB for 13 years — without giving the whistleblower analyst, the complainant (appellant) any right to rebut errors made by the agency counsel; perjurious statements made by the agency counsel.

    The MSPB, in part, rationalized that they did not find the analyst’s complaints to be credible because there was no indication that supervisors were disciplined at the agency in response to the disclosures of wrongdoing.  The analyst confirmed that neither the Office of Special Counsel nor the Merit System Protection Board ever asked him if he had any evidence that indicated others within the FDIC had been disciplined following his complaints.  In fact, the analyst had asked to meet with the Office of Special Counsel to go over his evidence but the investigator did not consider it necessary.

    The MSPB appears to have been captured by the agencies it oversees

    One need not be a skeptic to readily see how the revolving door between the MSPB and the agencies it supervises helps to circumvent fairness and justice. Of course, the perverse practice by the MSPB allowing the agency to present its evidence first precludes the MSPB Board from exercising some of its most significant merit system oversight duties. These include creating a public record of both parties’ positions on alleged governmental misconduct that could threaten or harm citizens.

    Similarly, it precludes the Board from a significant merit system oversight function that Congress emphasized when it passed the 1994 amendments to the Act. In other words, the public has notgotten the merit system protections Congress intended to provide whistleblowers when the MSPB was put in place.

    Instead of reforming the law to even the legal playing field to allow potential whistleblowers to protect the public by coming forth to “speak truth to power,” protections have become a smoke-screen allowing corrupt government agencies to carryout harmful practices as ever before. Just the opposite of what Congress had intended by amending the law has occurred because there is no effective oversight over the public unions, MSPB and OSC.

    Instead, the public has gotten a “watchdog” that was captured by the government agencies it was to oversee.  Administrative judges have no incentive to rule on a matter that could cast the MSPB in an unfavorable light.  After all, the heads at the MSPB and OSC are appointed and serve at the pleasure of the President.  The watchdogs have morphed into just another, separate appendage of the Employee Relations department at the various government agencies.

    No Comments "