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

 

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.

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