“If you’ve been in a poker game for a while, and you still don’t know who the patsy is, you’re the patsy.” ~ Old Saying
By Catherine Austin Fitts
Last week, Attorney General Eric Holder paid a visit to New York University and gave a speech encouraging the employees of financial institutions to become whistleblowers.
There are numerous legal mechanisms for private whistleblowers to get a piece of the action with the federal government in for-profit litigation:
- The False Claims Act has generated approximately $40 billion for the Department of Justice since its passage in the mid 1980’s, which cuts private whistleblowers in for a piece of the action.
- The whistleblower provisions of the 1989 Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) provide for whistleblower payments up to $1.6 million. Recognizing the role of inflation and the value of civil and criminal money penalties to padding the federal enforcement coffers, Holder has urged Congress to increase this limit.
- The 2010 Dodd-Frank Act offers whistleblowers a % of Securities and Exchange Commission settlements.
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My prior company, Hamilton Securities, was a target of a False Claims Act whistleblower lawsuit. In the process, I learned a great deal by direct experience and also did significant research into the growing “for-profit enterprises” of the federal enforcement agencies from asset forfeiture, to marketing prison labor, to civil and criminal money penalties as well as False Claims Act lawsuits.
Here is my advice for anyone who believes they have encountered wrongdoing within a financial institution and is considering whistleblower litigation in partnership with the federal government: Forget it.
Help your employer turn things around, or if you can’t, resign and go find something positive to do with your life. Otherwise, there is a 95% chance you will end up the patsy in a game that you don’t understand and your lifetime personal net worth will be lower for the experience.
Figure there is a 5% chance that you team up with an attorney who understands that this is a racket and has a successful business playing the racket profitably. Moreover, you get lucky and do not lose your health, your life or your reputation making racketeering your business too. Typically, this long shot only works financially if it leaves you and your family independently wealthy for life.
Welcome to one of life’s realities: nobody likes a snitch. That includes the attorneys who work at the agencies that use them. More often than not, it will also include your attorneys, particularly if you try to burden them with moral concerns or concern for the law.
The federal for-profit litigation business is a complex ecosystem which is a small part of a much bigger federal credit and financial ecosystem. To help you understand it in this context, let me grossly oversimplify to put it in perspective.
1. The US financial system combines monetary and fiscal largesse with financial repression as a matter of policy.
Market systems provide a great deal of self-organizing enforcement. However, we are not in a market system. Rather, in the current financial system government credit is used to provide significant monetary and fiscal subsidies which create tremendous non-market related divergences in cost of capital. So banks can behave as criminal enterprises on a repeated basis for long periods of time because they can use the federal credit through FDIC to guarantee deposits, rely on bailouts from the US Treasury and have the benefit of free access to capital at essentially 0% interest rates through the Federal Reserve.
However, when large banks are free to borrow money at essentially no cost, how can they be policed? One mechanism is government enforcement that makes sure that the monetary and fiscal largesse goes to the people and places where the largesse is designated to go. This ensures that the bank bureaucracies do what they are told as opposed to getting too many independent thoughts or letting trillions of free dollars go to their heads.
This situation is what all the sound money guys have been screaming about for years. However, the system is now sitting on top of a global mountain of debt and derivatives that require low interest rates. Hence, it appears that the extreme amounts of regulation that make up financial repression policies will be with us for some time.
2. The US financial system is the global leader in money laundering and criminal enterprise.
The US financial system is the leader in laundering and managing the profits of criminal enterprise – from narcotics trafficking, to slavery, to financial fraud. This leadership position enjoys widespread popular support. Ultimately, Washington and Wall Street’s shared goal is to ensure that US financial institutions hold the winning market share. However, they need to do so in a manner that protects their brand. That is, US financial institutions maintain an image as responsible fiduciaries so they can continue to sell and make markets in a wide range of securities, including their own and those of the US government.
This means enormous amounts of time and money are spent protecting the appearance of the rule of law and ensuring that official sanctioned lawlessness is kept under tight control.
3. The most sensitive projects of the US military, intelligence and enforcement complex are financed with the US black budget and a hidden system of finance which often enjoys the protection of (i) the National Security Act and related laws and (ii) covert operations which have the legal or practical ability to act above the law as well as harass, maim and kill with impunity.
Significant amounts of fraud that you encounter within a major financial institution may – in fact – be part of a black budget operation which is sanctioned at the highest levels of the financial system. Senior management is simply doing their job – often at the request of and in partnership with – the government. So you can see why your trying to report all of this to the government might not be in your best interest.
Channeling whistleblowers into a federally controlled system that requires that information be kept secret under a seal in a process controlled by the feds is an invaluable way of managing people whose efforts at transparency might threaten important covert projects and operators.
Indeed, don’t be surprised when some whistleblowers just happen to slip on banana peels.
Whistleblowing makes you the patsy, particularly if the government decides to take advantage of you in their own ongoing efforts to “manage” this business. As one attorney once said to me, “You don’t understand how the system works until you appreciate that they can and do spend $100 to make $1.” Remember, you are dealing with machinery that can print money infinitely and for whom the value of looking legitimate is near infinite.
4. Whistleblowers and whistleblower lawsuits are often used to target the innocent, to destroy small contractors who are taking business away from the large defense contractors and to protect a variety of contracting monopolies.
My firm, Hamilton Securities, was the target of a baseless qui tam lawsuit. In the process, I experienced the Department of Justice and the Department of Housing and Urban Development Office of Inspector General knowingly falsifying court filings, falsifying evidence, failing to comply with civil procedures, not to mention being supported by clearly corrupt behavior on the part of judges and disappearing court transcripts. In short, when you team up with federal government enforcement, you are teaming up with a partner who does not keep their word or their contracts and feels no obligation to obey the law. During one moment of refreshing honesty, I had one DOJ litigator express the sentiment that he was there to make money, not to enforce the law. The law, he said, was not relevant to the Department of Justice’s decision making – profit was. If it made money and they could get away with it, it was a good idea.
In the summer of 2000, as the former Assistant Secretary of Housing — Federal Housing Commissioner and CEO of the former lead financial advisor to the Federal Housing Administration at the US Department of Housing and Urban Development (HUD), I visited the offices of the Senate Appropriations subcommittee that oversees HUD. While there, a senior staff member of the Chairman of the subcommittee asked me what was going on at HUD. When I deferred, the staffer said, “HUD is being run as a criminal enterprise.”
HUD is operated on a matrix structure which is essentially controlled and operated by the US Treasury, the Department of Justice, the New York Federal Reserve as depository and agent manager of the Exchange Stabilization Fund, and the NY Fed’s member banks, along with several major defense contractors which run the IT and payments systems that aren’t run by the banks. If HUD was operating as a criminal enterprise at that time it was because those organizations were intentionally operating it as a criminal enterprise. Which means they, in turn, were criminal enterprises. The resulting crash in the housing and mortgage markets and various mortgage servicing scandals more than proved this point.
HUD is a perfect example of the deep ongoing partnership and financial interdependence between the US government and Wall Street. In one sense, civil and criminal money penalties and settlements are simply a legitimate looking mechanism for Wall Street to kickback the partners’ share of the winnings on joint ventures that used the federal credit and protection to engineer, such as the housing bubble, decades of black budget fraud, manipulation of currency and commodities markets, the implementation of global warfare by economic means, not to mention such headline grabbers as Madoff and Enron.
These days, the intelligence agencies no longer need to use secret funds from the Exchange Stabilization Fund to rig elections. Rather, DOJ and the State Attorney generals can engage in civil money settlement that help Governors like Andrew Cuomo raise and hand out money during campaign season to win elections.
If you were working for the Italian mafia and found them skimming on their partnership with the Mexican drug cartels overseen by the Russian mafyia, would you rat your mob boss out to the Russians for a percent of the action?
No, you wouldn’t. Because when the dust settles, they will still be deep, profitable partners and you will be expendable.
Yes, the Department of Justice can point to photos and headlines with whistleblowers making beaucoup bucks. Good marketing requires there to be a few lotto winners.
Want to build a better world? Your time and creative powers are precious. Walk away and find something more inspiring and rewarding to do.
Related Reading:
Anatomy of a Swat from a Lawyer’s Perspective
Hamilton Securities Litigation
Dillon Read & the Aristocracy of Stock Profits
Jon Rappoport and Catherine Austin Fitts Discuss Hamilton Securities
The Criminalization of American Business
