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Thursday, May 24, 2012

Government Wants Fraud Whistleblowers, But There's a Catch

The federal government is announcing it is looking for fraud whistleblowers to provide inside information on the workings of residential mortgage backed securities and the investment funds which bundled and sold them.  However, the government has plenty of hoops through which potential whistleblowers must jump. Whistleblowers should consider the drawbacks first.

The incentives for whistleblowers to come forward are not substantial, not when one considers the personal and professional fallout many whistleblowers suffer.  Insiders can face the loss of their jobs or careers, ostracization from friends and family, overt skepticism and accusations of complicity or criminality from co-workers and others who are suspicious of "do-gooders," and even intimidation from the government which holds the power to investigate and prosecute whistleblowers for crimes including making any "false statements" (however that is really defined) to any government agent.

I have previously stated my concerns about the new Dodd-Frank financial reform legislation's whistleblower provisions, which exclude lawyers and accountants (in order to preserve client confidentiality) while simultaneously recognizing the enhanced responsibilities (and even risks of criminal and civil liability) which are unilaterally imposed upon such professionals by regulators.  In fact, I was cited numerous times within recent materials handed out at a 2011 American Bar Association symposium on the Dodd-Frank legislation with regards to attorney confidentiality and whistleblower procedures.

Eric Dixon is a New York investigative attorney with significant knowledge of residential mortgage backed securities.  Mr. Dixon recently developed a position paper, published by the Financial Policy Council think tank, on how investors in RMBS can be incentivized to participate in Mr. Dixon's proprietary principal reduction plan that, at no cost to taxpayers, could aid the recovery of the residential real estate sector.

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