Thursday, April 26, 2012

Robo-signing settlement and FSGO Sec. 8B2.1(b)(6)


From: RDShatt@aol.com
To: askdoj@usdoj.gov, jmcpherson@naag.org, pslesinger@mortgagebankers.org, CCross@csbs.org, dsaunders@aarmr.org
CC: pat@ethics.org, KDarcy@theecoa.org, Paul_Heaton@rand.org, Michael_Greenberg@rand.org, lzicklin@stern.nyu.edu, mpainter@depaul.edu, beqeditor@uncc.edu
Sent: 4/26/2012 8:18:32 A.M. Central Daylight Time
Subj: Robo-signing settlement and FSGO Sec. 8B2.1(b)(6)


To the addressees:

I wish to ask some things of the state attorneys general, the Department of Justice, the Conference of State Bank Supervisors, the American Association of Residential Mortgage Regulators, and the Mortgage Bankers Association. My questions concern Sec. 8B2.1(b)(6) of the Federal Sentencing Guidelines for Organizations, as it relates to, and as it may be affected by, the $25 billion settlement that has been made by Ally Financial, JPMorgan Chase, Wells Fargo, Citigroup, and Bank of America regarding the alleged mortgage-servicing and home-foreclosure abuses stemming from the so-called "robo-signing" practices. The questions are, in part, prompted by the recent HUD report about the pressures that were put on bank foreclosure workers (as reported in this Wall Street Journal article).

Sec. 8B2.1(b)(6) of the Federal Sentencing Guidelines for Organizations provides that:
The organization 's compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program; and (B) appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct.
My questions are these: Is there, or should there be, any connection between, on the one hand, the prosecution of the governmental "robo-signing" complaint, and its settlement, and, on the other hand, the defendant banks, under their compliance and ethics programs, undertaking disciplinary measures against culpable officers and employees? In answering the question, please address the extent to which it is expected that Federal and state authorities will undertake criminal or civil actions against individual bank officers and employees, and also the actual or expected interface, be it facilitative or otherwise, between governmental authorities and the banks related to undertaking disciplinary measures against officers and employees (including whether and how the "robo-signing" settlement affects, or will affect, the same, be it positively or negatively).

The addressees are parties who had involvement with, or who have or should have special knowledge about what went on in connection with, the "robo-signing" settlement. I appreciate that the addressees are not the most primary sources of information for obtaining answers to my questions, and, if the addressees don't feel they are in a position to answer my questions, in whole or in part, I will understand.

Thank you.
Sincerely,
Rob Shattuck


From: jmcpherson@NAAG.ORG
To: RDShatt@aol.com, askdoj@usdoj.gov, pslesinger@mortgagebankers.org, CCross@csbs.org, dsaunders@aarmr.org
CC: pat@ethics.org, KDarcy@theecoa.org, Paul_Heaton@rand.org, Michael_Greenberg@rand.org, lzicklin@stern.nyu.edu, mpainter@depaul.edu, beqeditor@uncc.edu
Sent: 4/30/2012 8:19:09 A.M. Central Daylight Time
Subj: RE: Robo-signing settlement and FSGO Sec. 8B2.1(b)(6)
Good Morning Mr. Shattuck,
Please forgive my tardy response. I was out of the office last week and received your note this morning.
The National Association of Attorneys General (NAAG) was not involved in negotiations or settlement involving the state Attorneys General and the major mortgage processing companies. NAAG is also not involved in the execution or enforcement of that agreement. I recommend you correspond directly with the Attorneys General who were involved in the effort. Their e-mail and surface mail address can be found on our web site at www.naag.org.
Thank you,
Jim

 From: dsaunders@aarmr.org
To: RDShatt@aol.com
CC: DDOMINGUE@ofi.la.gov
Sent: 5/1/2012 4:50:42 P.M. Central Daylight Time
Subj: Re: Robo-signing settlement and FSGO Sec. 8B2.1(b)(6)
Dear Mr. Shattuck:

Relative to your questions please refer to:

Nationalmortgagesettlement.com

Best Regards,

David Saunders
Executive Director
American Association of Residential Mortgage Regulators
1025 Thomas Jefferson St., NW
Suite 500 East
Washington, D.C. 20007
e: dsaunders@aarmr.org 

From: PSlesinger@mortgagebankers.org
To: RDShatt@aol.com
Sent: 5/2/2012 4:51:07 P.M. Central Daylight Time
Subj: RE: Robo-signing settlement and FSGO Sec. 8B2.1(b)(6)

Mr. Shatt, You ask questions relating to the AG settlement that I lack the ability to answer, based on the limited public availability of the terms of the settlement and the special expertise needed to assess in the current context the relationship between criminal sentencing guidelines and the settlement of a civil action. I second the recommendation of another recipient of your email that you submit your questions to the AGs’ umbrella organization or to individual AGs.
Phyllis K. Slesinger
Senior Vice President & General Counsel, Human Resources and Legal Affairs
Mortgage Bankers Association
Phone: (202) 557-2869 begin_of_the_skype_highlighting            (202) 557-2869      end_of_the_skype_highlighting
Fax: (202) 621-1469

Wednesday, April 25, 2012

WSJ 3/13/12- pressure on foreclosure workers

[This article is relevant to questions that are raised in project  about entity level versus officer and employee individual liability as means to try to deter corporate wrongdoing.]

The Wall Street Journal, March 13, 2012, 3:20 p.m. ET

Government Reports Detail Pressure on Foreclosure Workers

By ALAN ZIBEL


Facing a wave of delinquent loans, managers at Bank of America Corp. BAC +0.37%and Wells Fargo & Co WFC +1.16%. pressured staff to speed up foreclosures without a proper review of the process, according to government audits released Tuesday.
Overwhelmed Wells Fargo workers voiced concerns to managers about signing loan documents and informed managers they "could not handle the workload," according to the inspector general of the Housing and Urban Development Department. But management didn't correct the problem and proceeded to cut the mandatory time frame for turning around documents to one or two days from between five to seven days to 24 to 48 hours, the inspector general said in a report.
A Bank of America manager apparently signed a foreclosure-related document about every two minutes of a typical work day for an entire two-month period, the inspector general said.
The HUD inspector issued reports about foreclosure-handling practices at five major U.S. banks, including J.P. Morgan Chase & Co JPM +1.00%., Citigroup Inc. C +0.51%and Ally Financial Inc., after the banks filed court documents Monday as part of a $25 billion settlement of allegations they violated state and federal foreclosure laws.
The inspector general's reports, unreleased until now, were held back as they were being used by federal officials as evidence of violations and served as leverage for the government during the settlement process.
Regulators and officials have faced criticism throughout the yearlong settlement negotiations for not doing a comprehensive investigation of alleged misconduct. Officials have pointed to the audits, among other investigations that predated the robo-signing controversy, to rebut those concerns.
The HUD inspector conducted the reviews because banks are charged with managing loans guaranteed by the Federal Housing Administration, which is part of HUD. When FHA loans default, banks submit claims to be reimbursed for any losses, but they can be forced to pay damages if they don't follow federal rules in processing those loans.
Banks have agreed to pay $5 billion in fines as part of the settlement, of which officials said $900 million will go to the FHA. The remaining $20 billion will be used for a variety of loan assistance to homeowners that owe more than their homes are worth and are at risk of foreclosure.
"The reports we just released will leave the reader asking one question--how could so many people have participated in this misconduct?" the inspector general, David Montoya, said. "The answer: simple greed."
Addressing the need for swift foreclosures, a Wells Fargo manager said in a March 2008 email that "due to attorney feedback and our wonderful challenging environment, this 48 hour turnaround time is critical," according to the HUD inspector's report. Wells Fargo also hired a former pizza restaurant worker, a department-store cashier and factory worker to process foreclosure documents in a Fort Mill, S.C., office, according to the report.
"The matters raised in the report cover observations that are two-four years old and they have been addressed," said Vickee Adams, a Wells Fargo spokeswoman. "Wells Fargo has made significant strides with implementing a number of changes in line with industry and regulatory servicing standards."
The report on Bank of America included statistics showing one bank official signed around 8,800 documents per month—or nearly one every two minutes for a typical 40-hour work week—in July and August of 2010. It also included employee performance reviews showing workers were expected to process as many as 50 documents per hour. The company "evaluated employee performance based in part on metrics for processing high volumes of documents," the report said.
Bank of America spokesman Dan Frahm said the report "references activities from over a year ago that have been addressed as we do all we can to modify loans when possible and to ensure foreclosures are fair when they are unavoidable."
Citigroup's mortgage unit "regularly signed foreclosure documents when not in the presence" of a notary public, as required by law, the inspector general said. The practice ended in February 2010. The report also noted Citi employees signed 60 to 200 documents per day. A Citi spokesman said the bank, at its own initiative, started working on improving its foreclosure-handling practices in fall 2009.
J.P. Morgan Chase declined to comment.
The report on Ally found an employee "routinely" signed 400 foreclosure documents known as affidavits per day and 10,000 a month, without reviewing the supporting documentation. The company "did not establish an effective control environment to ensure the integrity of its foreclosure process," the report said.
"We regret that possible procedural deficiencies with respect to certain affidavits occurred," Ally spokeswoman Gina Proia said. "When senior management became aware of the issue, they took quick and decisive action to address it."
—Nick Timiraos contributed to this article. 

Tuesday, April 24, 2012

Questions to ERC re: FSGO Sec. 8B2.1(b)(6)

From: RDShatt@aol.com
To: pat@ethics.org
Sent: 4/24/2012 4:06:14 P.M. Central Daylight Time

Subj: Questions re: FSGO Sec. 8B2.1(b)(6)

Dear Dr. Harned,

Sec. 8B2.1(b)(6) of the Federal Sentencing Guidelines for Organizations provides that:
The organization 's compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program; and (B) appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct.
Questions:

1. Does the Ethics Resource Center receive and study information about instances in which disciplinary measures have been taken by corporations, in order to evaluate whether corporations are employing disciplinary measures in an "appropriate" way, to evaluate the effectiveness of such measures, and to develop guidance, standards and procedures for corporations and their ethics officers concerning the use of disciplinary measures?

2. Does compliance and ethics extend beyond the strictly criminal, and does Sec. 8B2.1(b)(6) apply as well to corporate wrongdoing that gives rise to civil liability (i.e., are disciplinary measures to be used in the case of corporate wrongdoing that gives rise to civil liablity)?

3. Taking as a example the recent $25 billion robo-signing settlement agreement among the Justice Department, state attorneys general, and Ally Financial, JPMorgan Chase, Wells Fargo, Citigroup, and Bank of America, do you know whether, under the compliance and ethics programs of those banks, anything has happened or will happen as regards disciplinary measures being taken against officers and employees of the banks?

4. Taking again as an example the robo-signing settlement, what interaction do you think there is between, on the one hand, the actions of the banks in responding to and ultimately disposing of the civil action (or threat of civil action) by the Justice Department and state attorneys general, and, on the other hand, the use of internal disciplinary measures by the banks against officers and employees? Does the former (i.e., the actions in responding to and effectuating settlement with the government) facilitate the latter (i.e., the internal disciplinary measures)? Does the former impede or impair the latter in any way? Does the "no admission of wrongdoing" in the legal settlement and the lack of a determination whether wrongdoing has or has not taken place create difficulty in using internal disciplinary measures against officers and employees? Is there diversion of corporate resources and attention to the legal enforcement matter that deprives the compliance and ethics program of adequate attention and resources to do its job?

5. Questions 3 and 4 concern a very large legal case. There are probably hundreds of civil actions annually of all sizes against corporations in which corporate wrongdoing is alleged (which are frequently settled with no admission or determination of wrongdoing) , and about which questions such as those posed in 3 and 4 above could be asked. Do you feel ethics and compliance officers at corporations should be asking themselves and their management such questions?

Thank you.
Sincerely,
Rob Shattuck

[Note: after sending above email I saw this article about government report detailing pressure on mortgage foreclosure workers.]

Tuesday, April 17, 2012

Interim project report (draft)

The instant project was nominally commenced last June.   I have been pushing for more than ten years on the question of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing.

While many interested parties have declined to comment or take a position on the issue, I don't think anyone has taken the position that entity level liability is sufficient by itself for trying to deter corporate wrongdoing and that officer and employee individual liability should be dispensed with as a tool.

There is a constituency in the ethics community that would prefer no intrusion of the law and regulators into corporate affairs and that would like self-policing alone to suffice.  Some of this constituency may have such a strong preference and belief that they would advocate relying entirely on self-policing.  Currently, it seems clear that lawmakers, regulators, prosecutors, judges and others are not going to go along with that.

While no interested party seems to be prepared to take the position that entity level liability is adequate by itself,  there are reputable commentators who are clear in a belief that entity level liability alone is not sufficient and are open advocates of individual  liability.  For example, see the March 21, 2009  email here in response to this email inquiry I made regarding the Vioxx litigation of several years ago.

Gretchen Morgenson, the author of Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon,  has been very vociferous in complaining about officers, directors and employees not being held accountable for things that went on during the financial crisis.  See this entry.

Last May I started raising the question whether the Obama administration was shifting to targeting individuals.  See this entry.  Three Wall Street Journal articles at the time were suggestive that this was the case. See thisthis, and this.

The Ethics Resource Center endeavored in 2010 to engage with federal enforcement officials related to the ERC's white paper Too Big To Regulate: Preventing Misconduct in the Private Sector .  This white paper was predicated on a view that recent events had raised "significant" questions about the effectiveness of government regulation and the ability of regulators to prevent misconduct. The paper listed eight such questions, the last of which was one of possible resignation, to wit: "Have we simply reached the point where regulating corporate conduct is an impossible job?"

The paper did a lot of circling around the government's enforcement approach and the corporation's self-regulatory approach. The paper covered numerous points and issues, variously supportive of and questioning of the two sides. The paper acknowledged that differences persisted and called on the two sides to continue to try to bridge the gap.

I wrote this email to the Ethics Resource Center and this email to the government officials that urged consideration of the issue of entity level versus officer and employee liability as means to try to deter corporate wrongdoing.  These emails produced no response.

Generally, I have encountered widespread disinterest.

In some cases, it seems clear that  parties who should have an interest in my project are not interested in responding to me, because it does not entirely suit their interest to respond or because they have other more important interest.

For example, in the case of state attorneys general, entity level liability has important publicity value to them, and I believe that reduces their interest in determining their position on the issue of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing. State attorneys general also have significant "turf" issues vis a vis the United States Justice Department that are of much greater priority for them.  See this link and this link (no response received to the email in the latter link).

Corporate management I am quite sure has little interest in responding to a project like mine that asks questions that may lead to suggestions for altering the legal machinery to increase officer and employee individual liability in connection with corporate wrongdoing.

Plaintiffs' lawyers have a huge financial interest in entity level liability, so much so that, thus far, I have made little effort to contact them regarding my project.  Defense lawyers rake in millions of dollars defending against the plaintiffs' lawyers, and it is not in the interest of the defense lawyers to scrutinize the deterrence value of entity level liability.

I think corporate ethics officers, including the Ethics & Compliance Officer Association, are not able to respond very well, because they cannot diverge publicly from views of their corporate management bosses who, as mentioned above, want to stay away from anything that might lead to increasing officer and employee liability.

Consultants in the business ethics field have been non-responsive to my project. This is probably due to there being little revenue potential for them from my project and follow up that might grow out of my project, such as efforts to educate and persuade lawmakers, judges, and state attorneys general regarding the subject matter.

In the academic community, there currently seems to be greater interest in internal corporate culture, corporate leaders cultivating it positively, and the same being transmitted to employees through internal programs, and there is much less interest in how intrusive externalities of the law, courts, prosecutors and regulators should best be brought to bear on improving corporate behavior. This seemed supported by a review I did of articles in the Business and Ethics Quarterly from the past couple of years and the email correspondence I attempted with authors that is posted here and here.

Also, there are limits on the current ability of science and research to produce sufficient proof about  relevant matters to satisfy other "players," such as lawmakers, judges and regulators.  A good example is whistleblowing.   The Comment from the Business Roundtable Institute for Corporate Ethics, which is second comment at this link, cites the 1999 article Trust and Distrust in Organizations  in support of  the statement "Well intended actions can have unintended consequences, as illustrated by one academic study showing that employees who are subjected to additional, compulsory oversight measures often 'become less committed to internal standards of honesty and integrity in the workplace,' which are precisely the standards that promote sustainable, long-term value."  This probably provides little evidentiary proof to regulators about what regulations shall be promulgated.  By the same token, there is probably little scientific measurement of the societal benefit from paying whistleblowers (or from allowing whisteblowers to go directly to governmental authorities).  This current limitation of science and research probably applies to measuring the deterrent effect of entity level liability versus officer and employee individual liability.

If other parties are not interested, how bothered should I and the few others referred above (Gretchen Morgenson, the Vioxx commentator) be?  How big deal is there here?  Other interested parties need to answer that for themselves, and I can only reprise the possible important considerations I see.

The main problem with entity level liability is that most of the punishment is imposed on shareholders, employees and others who are "innocent" (in the sense of not being active and knowledgeable participants in the wrongdoing) and it does not target directly the officers and employees who were active and knowledgeable in the perpetration of the wrongdoing.  Frequently the latter escape any financial punishment, and they may, in fact, have profited significantly through higher compensation from the corporation while the wrongdoing was going on.

Also, if there has been wrongdoing that has resulted in gains and profits, many of the "innocent" shareholders, employees and others who bear the burden  of the entity level liability may not have received any benefit from the wrongdoing.  (Think about shareholders who have purchased their stock recently in a situation where profits from previous wrongdoing have been paid out as dividends or as salaries and wages, or reflected in a higher stock price at which the new shareholders purchased their stock.  Such new shareholders have not benefited from the wrongdoing, but they bear part of burden ofthe corporate level liability for the wrongdoing.)

This entity level liability lends itself to significant abuse by plaintiffs' lawyers, and arguably by corporate management ("heads I win bonuses and stock options, tails you stockholders pay the corporate liability").  Entity level liability contributes to the widespread phenomenon of "settlements" in which there is no determination of what wrongdoing, if any, took place.  Absent such determinations, society's actors (including those engaged in the ethics mission) are deprived of important guidance.  I have long considered the Vioxx case as a particularly good example.  See this entry.

As the Vioxx entry indicates, besides the failure to provide "guidance," there is also arguably a great waste of economic resources that could be deployed in better ways for advancing the mission of business ethics.

To me, cases like the Vioxx litigation and the recent $25 billion "robo-signing" bank settlement cry out for asking and trying to answer the question "what kind of deterrence effect is achieved by this type of entity level liability?"  (As to the "robo-signing" settlement, neither the Mortgage Bankers Association (link) nor the Conference of Bank Supervisors (link)  wishes to engage in any discussion about what deterrent effect is achieved.  The National Association of Attorneys General is also not interested in discussing the same.)

On the other side from the foregoing problems posed by entity level liability, first, it needs to be kept in mind that, as regards civil law liability, deterrence is secondary to the primary objective of compensating persons who have been harmed by wrongdoing.  This can lessen the impetus to try to fix the problems of entity level liability described above from a deterrence standpoint.  More important are the problems that are posed by trying to impose any liability on officers and employees in the modern, complex business world..  The activities of large corporations are designed and carried out through the collective action of numerous corporate officers, employees and other agents. Amidst complexity, there are many nooks and crannies for employing deceptions and tricks to obtain wrongful gains, and there are myriads of conflicts of interest in which persons can improperly exercise their authority in one position to favor another economic interest they have in a different position.  Discovering all the relevant facts and elements of wrongdoing, including identifying all the officers and employees involved and determining their respective responsibilities, can obviously be extremely difficult, time consuming and expensive.

It would seem that the problems on both sides of entity level liability and of individual liability create a very difficult choice for society.  Society has a hard time measuring the increased deterrent effect, if any, of holding responsible officers and employees liable and a hard time weighing that against the cost and expense of constructing legal machinery that will undertake determinations about, and impose punishments on, responsible officers and employees.  The primary objective of compensation as regards civil law liability also contributes much difficulty in the societal choices.

As a result, there is thus plausible reason for business ethicists not to weigh in on the issue of entity level liability versus individual liability.

To the extent they do not weigh in, they marginalize themselves.  Many of the other interested parties have a stake in staying away from the issue, and the issue is in the moral bailiwick of the business ethicists to take a position on.  If they don't, they are in effect saying, "we are not up to reaching a position on this issue."  If they do not weigh in, they are sidelining themselves if and to the extent the Obama administration and its prosecutors are engaged in making decisions about pushing for individual liability. They further lose stature in trying to engage with the governmental authorities on whistleblowing and the "governmental approach." They also lose ability to engage with management about whether legal settlements are an acceptable modus operandi in light of the "guidance failure" accompanying the same, the large diversion and possible waste of corporate and societal resources that could be better deployed in prosecution of the ethics mission, and arguing that the corporate world needs to modify its stance against plaintiffs' lawyers by offering more officer and employee individual liability in exchange for reduced entity level liability.

I will continue to try to get business ethicists to react.

Friday, April 13, 2012

E-book pricing lawsuit and EO's

Ethics officers want to prevent corporate wrongdoing.  I am trying to propound increased officer and employee individual liability as a means to deter corporate wrongdoing.  I also think the law has a huge role in defining and determining what is wrongdoing.  The modern commercial world is exceedingly complex, and how ideas for corporate activities come to fruition and get implemented by a corporation can make it enormously difficult to have legal machinery to impose individual accountability and responsibility.

A current case in point is the civil antitrust lawsuit concerning e-book pricing that the United States Justice Department filed in U.S. District Court for the Southern District of New York against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster.  Contemporaneously with the filing of the complaint (which can be found here), the Justice Department settled with three of the defendants (press release announcing this can be found here).

Has there been wrongdoing?  What could ethics officers have possibly done to prevent it?  What officers and employees should be held personally liable for the wrongdoing?

Saturday, April 7, 2012

Appeal to CCEG Advisory Board (updated)

From: RDShatt@aol.com
To: lzicklin@stern.nyu.edu
CC: pat@ethics.org
Sent: 4/7/2012 11:00:05 A.M. Central Daylight Time
Subj: Appeal to CCEG Advisory Board

Dear Professor Zicklin,

I have submitted this email to Mr. Greenberg and Mr. Mr. Dertouzos.

It seems to me that the subject of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing is a topic that is deserving of the CCEG's "systems perspective." (Per CCEG website: "We will take a broad view of the social, legal, and economic environment that influences corporate ethics. Such an approach allows for analysis of the interplay among forces—regulation, litigation, markets, and corporate culture—largely absent from academic research.")

Also, the website says, "We will explore new techniques for analyzing elusive subjects, such as corporate culture, that are difficult to approach empirically." That too seems applicable to my subject.

I have spent several years trying to get attention to this and cannot find much interest (as discussed in my above email).

I have importuned the Ethics Resource Center several times.

The ERC seems to have a preference for "self-policing" by corporations, which may limit its ability to "take a broad view of the social, legal, and economic environment that influences corporate ethics . . .[that] allows for analysis of the interplay among forces—regulation, litigation, markets, and corporate culture—largely absent from academic research."

This "self-policing" preference of the ERC seems evident in its 20th anniversary review of the Federal Sentencing Guidelines for Organizations. The discussion draft report touts the "sea change" in corporate ethics and compliance that has taken place, saying that "the most important story that emerges from the FSGO’s 20- year history is that the USSC’s carrot and stick approach has catalyzed vigorous efforts by companies to promote ethical performance and reduce organizational misconduct" The ERC has expended substantial resources* in conducting its 20th anniversary review of the Guidelines in order to register a chief complaint that insufficient credit is being given for effective corporate programs, because criminal cases are, by means of "settlements," being "detoured around the judges for whom the Guidelines were intended." (One of the things I have been trying to beat the drum about is how settlements of class action and other litigation deprive society of guidance about what is wrongful and what is not wrongful, and this results in a baneful muddle for corporate actors, including ethics and compliance officers; but I do not find any indication that the ERC is bothered by that potential business ethics impact of these settlements, which are much more widespread than the settlements the ERC is bothered by.)

I commented to the ERC that the FSGO deal with entity level liability and that the 20th anniversary review ought to include a review of what new learning, if any, has been acquired about the uses, effectiveness, and appropriateness of entity level liability versus officer and employee individual liability for purposes of deterring corporate wrongdoing. This is on the theory that the FSGO leverage corporate level liability to try to prevent corporate wrongdoing, and the Guidelines by themselves are not complete without a view in a some form about what role, if any, there is to be in the law for officer and employee individual liability.

If the ERC believes there is nothing to discuss, debate or investigate about entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing, that is their prerogative. If that is their belief, I strongly disagree.

It can be complicated, messy and frustrating to go outside corporate self-policing and deal with forces (like the law) and actors outside the corporation (like lawmakers, judges, plaintiffs lawyers, regulators, state attorneys general, and prosecutors). I hope that will not be a deterrent for the CCEG and that my submission will receive a fair and full consideration on its merits by the CCEG.

I look forward to receiving a reply from Mr. Greenberg, whatever that reply turns out to be.

Thank you very much.

Sincerely,
Rob Shattuck

* The ERC's draft report reveals these very substantial activities and efforts that were undertaken:

Presentation and discussion of the reporting outline with 500 compliance/ethics professionals attending a plenary session an industry conference3;
An online survey distributed to over 10,000 compliance/ethics professionals to gather input on the specific language of FSGO and areas that are in need of clarification4;
Research study involving outreach to 25 federal agencies with enforcement responsibility, requesting interviews and policy statements regarding credit given for compliance/ethics programs;
Meetings with staff of Congressional Oversight Committees5; and
Solicitation of public comment on the initial draft of this report before review by the Advisory Group

Needless to say, I wish the ERC would expend more resources outside the "self-policing" arena.

[update]
From: RDShatt@aol.com
To: lzicklin@stern.nyu.edu
CC: pat@ethics.org
Sent: 4/8/2012 4:39:51 A.M. Central Daylight Time
Subj: A little follow up

Dear Professor Zicklin,

In reviewing, I would like to call your attention to the Ethics Resource Center 2010 white paper Too Big To Regulate: Preventing Misconduct in the Private Sector and this email I sent to Dr. Harned concerning the same. Also, I tried to contact the government officials who made presentations to the ERC in connection with the white paper. See this email.

Preventing misconduct in the private sector is hugely daunting, and many parties are hard at work trying.

It seems to me indisuputable that better progress is going to be made, the more there is interface and communication among the interested parties consisting of lawmakers, judges, regulators, prosecutors, state attorneys general, plaintiffs' lawyers, ethics officers and organizations, academics, and corporate management.

I hope the ERC is doing follow up work in that vein related to its white paper.. I hope the Rand CCEG and ICJ also have growing interface and communication with other interested parties.

I am trying to participate in the ethics mission and would like to have more involvement with organizations like Rand and the ERC, which have resources, credentials and institutional standing that I lack.

Thank you.

Sincerely,
Rob Shattuck

Thursday, April 5, 2012

Rand ICJ and CCEG

From: RDShatt@aol.com
To: Michael_Greenberg@rand.org, james_dertouzos@rand.org
Sent: 4/4/2012 2:15:14 P.M. Central Daylight Time
Subj: Could Rand ICJ and/or Rand CCEG take this up?

Dear Mr. Greenberg and Mr. Dertouzos

I am an activist lay person.

I have embarked on a project to investigate the views and information that multiple interested parties have concerning the subject of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing. See this Statement of project.

I would like to make a case study of the $25 billion settlement that has been made by Ally Financial, JPMorgan Chase, Wells Fargo, Citigroup, and Bank of America regarding the alleged mortgage-servicing and home-foreclosure abuses stemming from the so-called "robo-signing" practices. I have tentatively drafted a set of survey questions I would like to ask of employees of those banks. See Employee survey regarding robo-signing settlement.

I have previously written these two pieces that are a provenance of my project: Does the Civil Liability System Undermine Business Ethics? and "Whither the Quest of Business Ethicists?" .

I am disadvantaged in prosecuting my project because I lack credentials, standing and institutional backing in the business ethics field.

I have learned or am discovering that a number of the parties who should have an interest in my project are not interested in responding to me, because it does not entirely suit their interest to respond or because they have other more important interest.

For example, take state attorneys general. Entity level liability has important publicity value to them, and I believe that reduces their interest in determining their position on the issue of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing. State attorneys general also have significant "turf" issues vis a vis the United States Justice Department that are of much greater priority for them. You may draw your own conclusions by review this link and this link (no response received to the email in the latter link).

Corporate management probably has little interest in responding to a project like mine that may lead to sugesstiosn for altering the legal machinery to increase officer and employee individual liability in connection with corporate wrongdoing.
 
Plaintiffs lawyers have a huge financial interest in entity level liability, so much so that, thus far, I have made little effort to contact them regarding my project.

I think corporate ethics officers, including the Ethics & Compliance Officer Association, are not able to respond very well, because they cannot diverge publicly from views of their corporate management bosses who, as mentioned above, probably want to stay away from anything that might lead to increasing officer and employee liability.

Consultants in the business ethics field have been non-responsive to my project. This is probably due to there being little revenue potential for them from my project and follow up that might grow out of my project, such as efforts to educate and persuade lawmakers, judges, and state attorneys general regarding the subject matter.

In the academic community, there currently seems to be greater interest in internal corporate culture, corporate leaders cultivating it positively, and the same being transmitted to employees through internal programs, and there is much less interest in how intrusive externalities of the law, courts, prosecutors and regulators should best be brought to bear on improving corporate behavior. This seemed supported by a review I did of articles in the Business and Ethics Quarterly from the past couple of years and the email correspondence I attempted with authors that is posted here and here.

Regardless of whether any interested parties have a propensity that favors an internally focused approach and they prefer to keep external actors and forces at bay, the SEC's recent whistleblower rules forced parties to speak their minds in order to try to get governmental action that was more to their liking rather than less. The "For Whom the Whistle Blows" report of the Rand Center for Corporate Ethics and Governance explores at length this "significant controversy" in which "critics and advocates have squared off. . .."

In the introductory section, the report lays out, related to its May 11, 2011 symposium, the below "context" of issues and differing views and perspectives, including about employee psychology, concerning whistleblowing:

Critics of the whistleblower rules under Dodd-Frank assert a litany of ill effects that they believe will accrue under the law. As outlined in the recent congressional testimony of Ken Daly, president of the National Association of Corporate Directors, the potential for enormous bounties might lead corporate insiders to let instances of fraud go undetected without reporting them internally, only to later bring them directly to the SEC in the hopes of securing a large financial award.1 Similar concerns were expressed by the U.S. Chamber of Commerce and others, who cautioned that some aspects of the Dodd-Frank rules might “undermine the functioning of effective corporate compliance programs by relegating them to the sidelines in the process of identifying and remedying violations of securities laws.”2 Both the National Association of Corporate Directors and the Chamber of Commerce took the position that corporate employees ought to be required to report instances of suspected fraud internally within their companies as a condition for subsequent eligibility for whistleblower bounties under Dodd-Frank. And as one commentator recently observed, future SEC enforcement actions (particularly under the Foreign Corrupt Practices Act) make the possibility of future high-value whistleblower payouts seem likely. “Then the floodgates will truly open.”3 
A contrasting viewpoint has been offered by advocates from the whistleblower community. According to results from the latest iteration of the National Business Ethics Survey, the prevalence of observed misconduct in the corporate workplace remains widespread, yet more than 40 percent of those occurrences are never disclosed to anyone by the witnessing employees. Of those instances that are disclosed by an employee, most are reported directly to an immediate supervisor and not via a formal compliance mechanism.4 In a somewhat different vein, recent empirical studies of successful qui tam claimants under the FCA suggest that a substantial majority actually do try to report misconduct internally within their own companies and only blow the whistle as a last course of action.5 These kinds of findings illustrate a basic tension in the ways in which different people view the corporate compliance function. 
Among many executives and directors in the business community, compliance programs are viewed as basically effective ex ante and threatened by new external whistleblower awards. Some whistleblower advocates and other commentators, on the other hand, suggest the opposite—that many employees lack trust in internal compliance and reporting channels and that most would be only too happy to use them if they felt safer and better protected in doing so. A complementary observation has been put forward by some leading members of thecompliance profession—namely, in too many corporations, compliance and ethics programs are either broken or hollow, and much more needs to be done to make those programs truly effective.6 In a 2009 RAND symposium, significant discussion focused on the lack of a strong, independent chief ethics and compliance officer (CECO) as a key indicium of a weak or failing program. As the author of one invited white paper opined, “A well-implemented compliance and ethics program doesn’t spring from the void ex nihilo—it requires a strong leader to engage others in the organization, including powerful senior managers, to surface and resolve issues and challenges, and to make a culture of transparency, accountability and responsibility areality.”7 
The debate over whistleblowing under Dodd-Frank invokes radically different viewpoints about the psychology of employees who come forward to reveal misconduct. Is the decision to report primarily opportunistic and strongly motivated by perceptions about the potential for large financial reward? Or is the decision inherently risky, such that a person’s career, family, and home may be placed in jeopardy by coming forward? Without seeking an objective answer to these competing visions, it is important to recognize that the Dodd-Frank regime is premised on the idea that both viewpoints may simultaneously be true. In other words, incentives for whistleblowing may be desirable precisely because it is difficult, risky, and unpalatable for employees to come forward, and it is frequently easier for them simply to remain silent. Meanwhile, are employees’ decisions about external whistleblowing likely to be influenced by access to robust internal reporting mechanisms, together with a culture of ethics and trust in the workplace? This is a nebulous question to try to address with empirical data. It seems intuitive, though, that a hypothetical stampede of whistleblower claims under Dodd- Frank might more likely occur in a world in which instances of corporate fraud and opportunistic behavior are widespread, internal compliance mechanisms are not trustworthy, and commitments to honesty and fair dealing are not viewed as basic attributes of the corporation or the employment relationship..
In some basic sense, the superficial debate over whether the Dodd-Frank whistleblower provisions are a good idea conceals some underlying points of broad agreement. Corporate fraud and misconduct are bad things. Compliance and ethics programs are intended to protect companies themselves, as well as the community at large, from bad behavior. An ideal world is one in which the occurrence of misconduct in corporations is low, in which employees trust internal reporting mechanisms, and in which those mechanisms make external whistleblowing largely superfluous. These are points that reflect the shared interest of the corporate community, regulators, and employees and that move beyond the basic debate over government bounties and external whistleblowing. That debate has largely been rendered moot by the final SEC whistleblower rules under Dodd-Frank, which were promulgated in May 2011 and establish that internal reporting of fraud is not required for subsequent eligibility for an SEC whistleblower award. Given the new reality of the external whistleblower rules, the key question for all stakeholders becomes, How can internal reporting mechanisms and compliance and ethics (C&E) programs broadly be made more effective, in a way that minimizes the need for external whistleblowing? Furthermore, are there ways to ensure that the corporate community and regulators can work together toward this end and that compliance programs are neither sabotaged nor “bumped to the sidelines” by by Dodd-Frank?
I would like to ask you: Whether or not interested parties are willing to speak out (or can be forced to speak out), do you think my project about entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing raises issues and questions equally deserving of exploration in the business ethics field as does whistleblowing?

If so, could the Center be talked into expanding the scope of its report "An Early Assessment of the Civil Justice System After the Financial Crisis" to address entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing? 

Thank you.

Sincerely,
Rob Shattuck

Monday, April 2, 2012

Trust and Distrust in Organizations

From: RDShatt@aol.com
To: kramer_rod@gsb.stanford.edu
CC: KrehmeyerD@darden.virginia.edu, mpainter@depaul.edu
Sent: 4/1/2012 9:58:05 A.M. Central Daylight Time

Subj: TRUST AND DISTRUST IN ORGANIZATIONS: Emerging Perspectives, Enduring Questions

Dear Professor Kramer,

I have looked at your above article by reason of its recent citation by Mr. Dean Krehmeyer here: [Comment from the Business Roundtable Institute for Corporate Ethics, which is second comment at this link]. ("Well intended actions can have unintended consequences, as illustrated by one academic study showing that employees who are subjected to additional, compulsory oversight measures often 'become less committed to internal standards of honesty and integrity in the workplace,' which are precisely the standards that promote sustainable, long-term value.")

My interest includes that I am embarked on a project to investigate the views and information that multiple interested parties have concerning the subject of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing. See this Statement of project. Right now I am trying to make a case study of the recent $25 billion robo-signing settlement (see this link).

Society, through the criminal and civil law, subjects employees (and corporations), in Mr. Krehmeyer words "to additional, compulsory oversight measures" and the result, in your words quoted by Mr. Krehmeyer, is that they "become less committed to internal standards of honesty and integrity in the workplace."

My project and case study are centrally about the "additional, compulsory oversight measures" of the criminal and civil law. Further, "interested parties" include lawmakers, regulators, judges, prosecutors, state attorneys general, plaintiffs' lawyers, corporate management, and ethics officers ("non-academics"). I am particularly interested in what the academic parties have to say to the non-academic parties.

Mr. Krehmeyer has given very significant weight to your article and supporting research. He does not indicate much about countervailing academic viewpoints.

For several years I have been endeavoring to explore the other side of the coin, first with Does the Civil Liability System Undermine Business Ethics? , and then with "Whither the Quest of Business Ethicists?" .

Dr. Painter-Morland, the editor of the Business and Professional Ethics Journal, has encouraged me regarding the latter article, but has said it is on the short side for academic journals and that it could "benefit from more engagement with the extant literature on the topic." I said I would try some more.

If some "extant literature on [my] topic" comes quickly to your mind, I would very much appreciate it if you would mention the same to me.

Thank you.

Sincerely,
Rob Shattuck

Sunday, April 1, 2012

Mortgage Bankers Association

From: RDShatt@aol.com
To: __________@mortgagebankers.org
Sent: 3/31/2012 6:28:04 A.M. Central Daylight Time
Subj: contact email address for David Stevens
Dear ___________,
I don't see a good contact email address for Mr. Stevens on the MBA website. I got your above email address from the National Fraud Issues Conference brochure. If I may, I will send to you the email I wish to send to Mr. Stevens and ask if you could please forward it to him.
Thank you.
Rob Shattuck



From: RDShatt@aol.com
To: __________@mortgagebankers.org
Sent: 3/31/2012 6:30:31 A.M. Central Daylight Time
Subj: Case study re robo-signing settlement (please forward to Mr. David Stevens)
Dear Mr. Stevens,
I am an activist lay person.
I am embarked on a project to investigate the views and information that multiple interested parties have concerning the subject of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing. See this Statement of project.
I wish to make a case study of the $25 billion settlement that has been made by Ally Financial, JPMorgan Chase, Wells Fargo, Citigroup, and Bank of America regarding the alleged mortgage-servicing and home-foreclosure abuses stemming from the so-called "robo-signing" practices. I have tentatively drafted a set of survey questions I would like to ask of employees of those banks. See Employee survey regarding robo-signing settlement.
I have contacted a number of state mortgage bankers associations about my project.
I note the April 22-25 National Fraud Issues Conference that will "give[s] a comprehensive look into the issues related to mortgage fraud and steps industry professionals, law enforcement and government officials are taking to prevent fraud against lenders [emphasis supplied]."
Of parties who have or should have an interest in the robo-signing settlement, it would appear at this juncture that state attorneys general are not much interested in investigating and formulating a position on the issue of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing. See this link and this link (no response received to the email in the latter link).
As a "principal party" in the robo-signing settlement, the Conference of State Bank Supervisors believes it "would be inappropriate" to lend assistance to me in my case study. (See the CSBS email in this link.)
I am making continuing efforts to get input from ethics and compliance professionals and the other interested parties.
Please contact me if the Mortgage Bankers Association would be willing to lend me any assistance related to my case study.
Thank you.
Sincerely,
Rob Shattuck


From: PSlesinger@mortgagebankers.org
To: RDShatt@aol.com
Sent: 4/3/2012 11:19:37 A.M. Central Daylight Time
Subj: Research Request

Dear Mr. Shatt:
I was asked to reply to your request for assistance in connection with your case study because your request covers legal matters.
I have reviewed your email and found your topic interesting. However, I do not believe we are in a position to provide any assistance to you in your work.
Sincerely,
Phyllis K. Slesinger
Senior Vice President & General Counsel, Human Resources and Legal Affairs
Mortgage Bankers Association
Phone: (202) 557-2869 begin_of_the_skype_highlighting            (202) 557-2869      end_of_the_skype_highlighting