For more than a year, the attorneys general of all 50 states have been in talks with major banks over fraudulent foreclosure practices that drove millions of Americans from their homes following the bursting of the housing bubble, including so-called robo-signing. Some points of a settlement have been reportedly agreed to, including a $25 billion cost to the banks. Last Thursday, Massachusetts Attorney General Martha Coakley broke ranks and sued the five biggest mortgage servicers , in the first government lawsuit targeting all five for alleged improper foreclosure practices. The Wall Street Journal, December 2, 2011, Markets
In middle of November, Nevada Attorney General Catherine Cortez Masto had a grand jury hand up criminal indictments against two title officers employed by Lender Processing Services Inc. for allegedly directing and supervising a robo-signing scheme, in which documents filed in foreclosure cases were signed without proper legal review. The 606-count indictment alleges that the two title officers, Gary Trafford and Gerri Sheppard, directed employees under their supervision to forge their names on foreclosure documents, then notarize the forged signatures, so that it appeared that the pair actually signed the documents. Lender Processing Services, Inc. was not indicted. The Wall Street Journal, November 16, 2011, U.S. News
Twenty five billion dollars is a lot of money, and if there has been wrongdoing that damaged foreclosed homeowners, it is just for those homeowners to be compensated by those who perpetrated the wrongdoing.
If there has been corporate wrongdoing that caused $25 billion in damages to foreclosed homeowners, that would seem to represent a significant mission failure of ethics and compliance officers at the banks in question. If so, hopefully those ethics and compliance officers will do some post-mortem review of their mission failure.
I think those ethics and compliance officers should think about the effectiveness of $25 billion being paid by the banks, as compared to criminal prosecution of culpable officers and employees who did the wrongful actions, as means to deter corporate wrongdoing.
I believe the Ethics & Compliance Officer Association, the Ethics Resource Center, and other business ethics organizations and advocates should interest themselves in the issue of entity level liability versus officer and employee liability for deterring corporate wrongdoing.
The state attorneys general should also think about this issue. For the time being, the National Association of Attorneys General has indicated that it is not within its purview of that organization to conduct policy research and analysis of the issue for the benefit of its member attorneys general. See this entry.