She was just doing her job, wrote Taibbi, "to help make sure the bank didn't buy spoiled merchandise."
One concern: the dates on many of the mortgage loans were suspiciously old, some as old as seven or eight months, suggesting they had already been rejected or, worse yet, sold to another bank and returned after borrowers missed multiple payments, noted Taibbi. "They were like used cars towed back to the lot after throwing a rod." A fresh coat of paint was not going to improve them.
An unacceptably high percentage of borrowers appeared to be excessively overstating their incomes and would likely be unable to repay their loans. And yet when Fleischmann wrote e-mails and later a memo to those in charge, expressing her concerns that certain loans were suspect, her warnings were ignored. Meanwhile she observed the diligence managers she worked with, who reviewed the loans, "basically being verbally abused into clearing loans that they didn't agree should be cleared," she says.
A red flag at the time for Fleischmann and others: "We were prohibited from sending e-mails to our new manager for diligence, and he wouldn't send them to us." This suggested to her that someone at the firm didn't want a written record of their warnings.
What Makes a Whistleblower
Fleischmann's approach "is emblematic of that course of conduct of people first trying to get things right within their company, not rushing out to establish themselves as a whistleblower in order to achieve a reward but trying to get their company to do the right thing in the first instance," says
Neil Getnick '78, whose firm, Getnick & Getnick, takes on mostly
qui tam whistleblower law cases (more on that later).
Charles Whitehead, a corporate law practitioner and general counsel for many years before he joined the Law School's faculty, says, "It's really easy in a large bank or any sizable organization to get along by going along. Ninety-nine people out of a hundred do it. It takes a lot of backbone to be that one person who stops and says this doesn't make sense."
Rolling Stone article about Fleischmann "speaks to a culture and a way of doing business in large organizations like JPMorgan that strikes a chord," says Whitehead. "It's something you grow to recognize in practice."
At companies such as the one where Fleischmann worked, he says, "on the one hand if you're a chief operating officer, general counsel, or the CEO of the company you should be balancing out the long-term benefits against the risks of whatever business you're in. That's your job. That said, once you are at a relatively senior level, your paycheck begins to reflect how much you and your group earned in a particular year," Whitehead notes. "Old-time Wall Streeters are familiar with the 20/80 rule, 20 percent of your pay being salary, 80 percent or more being bonus, which means every year you need to produce to get paid the bulk of what you hope to earn."
Whitehead, whose paper on that subject, "Paying for Risk," is being published in the
Cornell Law Review this year, adds that senior managers may want to boost revenues not only to increase their paychecks but also to be more attractive to other firms, which they can jump to, leaving behind whatever problems they may have created.
"The incentives to take on risks to goose up profits exist, not just within a single firm but across the financial industry," he says. "The incentive structure is based on short-term profits, but the risks won't materialize until the longer term," he explains. "Whether or not a mortgage is toxic, a pool of mortgages is good or bad, you're not going to know about it for a couple of years. By that time the banks may have cashed her paycheck and moved on," Whitehead points out.
"By all accounts Ms. Fleischmann understood the short-term value of the mortgage products in terms of money in the door but may have said: 'Hold on, this runs against policies and procedures that are intended to manage risk over the longer term-and for whatever reason we're not following them. This is a problem.'"
"But if you work in an organization where the incentives all push toward enhancing short-term returns," says Whitehead, "it can be difficult to effect change. That seems to be part of what she ran up against."
Toward a More Ethical Workplace
A lesson many companies have yet to learn is that being ethical is good not only for one's conscience, but also for business, says Cornell law professor
Lynn Stout, who teaches corporate and business law. "The data show that the more ethical and trustworthy a culture, the higher the levels of economic growth and investment."
But until ethics gets more than lip service in a company's business plan, Stout says we need whistleblowers, "people with moral muscle," to report unethical behavior. The downside, at least to the whistleblower, is that being one can be tremendously personally costly.
"Among other things, it can be very hard for your career," says Stout, who lays some of the blame for contemporary business scandals on the dominance of the model of thinking about human behavior she calls
homo economicus. "It's a model that assumes people always do what they need to do to maximize their own material welfare without regard to ethical consideration," she says. "This is, of course, the model that underlies the whole pay for performance ideology, and the constant drumbeat of calls for trying to channel human behavior through material incentives."
But there is another way, one that motivates good behavior, says Stout, whose book
Cultivating Conscience: How Good Laws Make Good People (Princeton University Press, 2011) discusses a different, more humane model that has been empirically proven. "It's a fact, like gravity," she says. "It's really not disputable that most people are pro-social." "When people act pro-socially you can actually see certain areas of the brain light up," Stout notes. "This is a deep biological phenomenon."
"But while most people are willing to make at least modest sacrifices to follow ethical rules and avoid harming others," she says, "the data also show that fewer people will make a big sacrifice. People are less likely to behave ethically when doing so is extremely personally costly."
Stout also observes that good behavior depends on social context.
"There are three triggers for getting people to behave pro-socially," she says. "One, you must be told by respected authorities that ethical behavior is expected and that you should behave yourself and follow ethical rules; two, you must believe other people like you are following ethical rules; and three, you must understand how following ethical rules benefits the group and society."
When whistleblowers do come forth, "it usually indicates that the people in charge are not demanding ethical conduct," she says. In such an environment people start to think that everybody else is cheating, and even that unethical behavior is harmless, Stout notes.
One Whistleblower's Story
Fleischmann's view is a little more nuanced than Stout's.
There are the people who are doing what they shouldn't be doing in the first place," she says, "and there are the ones who are aware of it but don't do anything about it. Some will try to stay out of it and look the other way. And a lot will quit. They just look at it and say, 'I don't want to be part of this, but I also don't want to destroy my career,' so they leave."
"It's good to not take part," Fleischmann says. "But if you don't take any steps to stop [the unethical behavior] then it only gets worse, because the good people leave, and you end up with this concentration of people who are willing to do the things that they shouldn't do."
Fleischmann had sacrificed a great deal to get to her position as a transaction manager at JPMorgan Chase, and she had no intention of leaving.
"I came from a very small town in western Canada, and a very modest background financially," she recounts. "To get that job on Wall Street took more than a decade of hard work, borrowing money, working my way through school, getting the sorts of grades in college that could get me into Cornell Law, doing the sort of work at a law firm where I'd then get hired by a bank," she says.
And she had taken pride in her work and enjoyed her JPMorgan job immensely, at least until the spurious loans and the pressure to approve them. She simply wanted to make things right, so she persisted in her efforts to warn higher-ups about potential fraud.
Eventually, because she considered it her job to do so, she ignored the order not to send e-mails and started sending out e-mails with diligence reports expressing her concern to people at increasingly higher levels within the bank who she hoped would stop the securitizing and sale of the suspect pool of mortgage loans.
"But no matter how high I went nobody stopped it," she says.
When she finally realized that, she decided to try to stop the fraudulent activity by "making it impossible for anyone to say that they didn't know what was going on." In the long memo she sent, to a senior managing director in the bank, she also named most of the people she had warned earlier about the problem.
"When you write something like that you know that they're not going to keep you around, because they can't have someone who's keeping a record of these decisions," Fleischmann says.
And indeed, she was laid off in February 2008, an action she believed was taken in response to her complaints.
While she knew that being a whistleblower was the right thing to do, it soon became apparent in a very real way that it might be disastrous for her career. "When you blow the whistle you get kicked out of your own industry, very broadly speaking," she says.
She needed a job, but the timing for a new job search, at the height of the financial crisis, couldn't have been worse-nor the irony sharper. Her work in mortgage-backed securities dominated her résumé, and as that area was now considered to be the cause of the financial collapse, in essence she was blamed for what she tried to stop as a whistleblower.
"The assumption people make when you're no longer on Wall Street and you have it on your résumé is that you must have done something wrong that explains why you're no longer there," she says.
Flesichmann briefly worked in litigation-the only work available to her back then-but quickly realized the work would mean defending other large banks in mortgage-backed securities cases. As a result, she decided to return to her native Canada in 2009 to practice law there.
She was immediately faced with a long requalification process.
"If you want to be a lawyer in Canada and you went to law school elsewhere, it doesn't matter if it was Cornell or Harvard or Yale or Oxford. First you have to do your federal exams, which take most people about two years," she explains.
But as the old song goes, she somehow managed to pick herself up, dust herself off, and start all over again.
Because she needed an income while she was doing the hard work of getting requalified, she looked for work to support herself. Unfortunately, Canada too had been affected by the U.S. financial crisis, and job opportunities had frozen up there. After searching for months, she accepted employment at Scotiabank in its private client group.
Then, following her federal exams, she had to do a legal internship, called "articling" in Canada. "I found a position in Calgary in the corporate group at a large Canadian law firm group, Gowlings, which is where I spent the last year and a half," she says.
After she was admitted to practice law in September 2013, she returned to British Columbia to find work as a lawyer.
The Deal That Eclipsed the Fraud
What Fleischmann did not know when she was laid off at JPMorgan Chase in 2008 was whether those bad loans she had warned about had actually been sold, so she was unable to report a crime to the Securities and Exchange Commission (SEC) or the U.S. Department of Justice.
They had, however, been sold. She spoke with the SEC in April 2012, and then, in December 2012, she met with assistant U.S. attorneys from the DOJ's Sacramento, California, office, which was investigating the bank. She was deposed by them in March 2013. (Depositions are a part of the discovery process in which litigants gather information in preparation for trial.)
"Richard Elias, the prosecutor I met with there, drafted a complaint that laid out the case, and from what I knew it seemed to me like a very robust securities fraud case," says Fleischmann, who was hopeful it would go forward and that some justice would be achieved at last.
Instead, she saw in the newspaper that "what happened next is literally hours before it was going to be publicly filed [JPMorgan Chase CEO]
Jamie Dimon called up [a top U.S. Department of Justice official] and asked him not to go forward with filing the complaint and to have more conversations that increased the amount of money they were handing over," she says.
Indeed, JPMorgan Chase agreed to pay the government $13 billion to stop the lawsuit against the firm, according to a November 19, 2013, New York Times story on the occurrence and the tale behind it.
The DOJ released a statement of facts, in which the bank acknowledged how it had failed to fully disclose the risks of buying mortgage securities from 2005 to 2008.
But Taibbi in his
Rolling Stone story, along with other critics, has observed that the statement was entirely lacking in either facts or admission of wrongdoing.
Certainly, no guilty parties were named, which left Fleischmann with still no way to disprove her involvement.
"My concern from a legal perspective," she says, "is even when there had been settlements in the past where no wrongdoing was admitted, there was always either something publicly filed or a release of e-mailed documents. In this case, however, the facts of the case were really sterilized into something in which you couldn't see what happened or who did what. In particular, you couldn't see the details of the criminal case, which would have been apparent in that complaint that didn't go forward." Fleischmann is still hopeful that the facts will one day become public.
A Silver Lining, of Sorts
In early 2014, Fleischmann Googled her own name. One of the top results was a filing in which the lawyers of the Fort Worth Employees' Retirement Fund, a retirement fund for carpenters and other trade workers, had requested to speak to her. The fund, which had bought mortgage-backed securities from JPMorgan Chase and lost large sums as a result, is suing the bank for alleged misrepresentation.
"This memorandum and order by the judge just popped up randomly under my name, where I could see that JPMorgan had told this fund and their lawyers that I didn't have relevant information or it was duplicative," she says.
"She was shocked. "This was the first time it occurred to me that this may be happening in a lot of cases out there, where I would be relevant to litigation, but JPMorgan's lawyers were actually saying that I didn't have relevant information."
Following going public, she began to get e-mails from plaintiffs' counsel, business law litigants, and other people dealing with suits over failed securitized mortgage investments linked to JPMorgan Chase.
So she started responding to them and eventually met with some of them. The experience was eye opening.
"These litigants represent pension funds and retirement funds for everyday working people," Fleischmann says. "They are teachers and pipefitters, carpenters and county workers, all trying to get their money back."
One insight she's had: "The co-op banks, credit unions, and community banks that are also suing JPMorgan Chase were, in fact, the healthy competition to the big banks, and they got beaten down by them. They lost a tremendous amount of money."
She points out that "one of the myths is that it happened back in 2008, and it's all over now. But when you look at these cases, these people, some of these suits go back to 2009, and they're still in discovery. They are fighting against this wall of JPMorgan lawyers who are holding back relevant information."
Neil Getnick, who taught a course on whistleblower law with former dean Stewart J. Schwab in 2014 at Cornell Law School, makes a distinction between
qui tam whistleblower law cases and other kinds of cases involving whistleblowers, such as a private matter between an employee and his or her company that could give rise to an employment action with a whistleblower component.
"Qui tam cases are initiated by private citizens on behalf of, or in partnership with, the government," explains Getnick. They make use of federal and state False Claims Acts aimed at recovering defrauded government funds. Private citizens may also avail themselves of a series of whistleblower laws aimed at tax, securities, and commodities fraud, he says.
"Under any of those laws a citizen who has knowledge of such fraud can retain counsel in order to file either a case or a claim. And if there is a recovery, then that individual is entitled to a share of it," Getnick points out.
The False Claims Act laws "envision a partnership between the citizen and the government," he says. "They empower citizens to bring suit on behalf of the government, and then to pursue that case through private counsel on the government's behalf, either in a public-private partnership or on their own, to advance the interests of our government."
A Brief History of U.S. False Claims Act Laws
The federal False Claims Act is sometimes called "Lincoln's Law," says former dean Schwab. "That's because during the U.S. Civil War, under President Lincoln, there was a lot of fraud and abuse going on involving contractors supplying the Union Army," he explains. "Some would supply the army with gunpowder that turned out to be sawdust. Meanwhile the government was trying to fight a war, so they had things to do other than going after everybody trying to make a fraudulent buck."
The result was the first federal False Claims Act, in 1863, which allowed people who knew about fraudulent practices targeting the U.S. government to sue in court on the government's behalf and, if successful, get 20 to 30 percent of the award, he says.
After the war the statute remained on the books but was little used from the time of World War II until 1986, when it was strengthened by bipartisan legislation in the House and Senate. Once again fraud against the military was targeted, particularly contractors who overcharged for everything from faucets billed for thousands of dollars to airplanes that malfunctioned, Schwab says.
qui tam suits have shifted to fraud in the health-care and pharmaceuticals industries, as the government picks up more and more of the tab for people's hospital, medical, and drug costs under Medicare and Medicaid, explains Schwab. "It's a major percentage of the federal budget, and there have been some very dramatic cases against the drug companies."
The U.S. Department of Justice website calls the False Claims Act the "single most important tool U.S. taxpayers have to recover funds lost due to fraud against the government." And with good reason, points out Getnick.
Prior to the 1986 legislative changes the Department of Justice was recovering less than $50 million a year through the federal False Claims Act," Getnick says. "In the ten years following 1986, the Department of Justice recovered $1 billion. It became very apparent that the amendments were highly efficacious. But most significantly, last year alone the DOJ recovered more than $5.5 billion, which brings the total recoveries in the last five years to $22.75 billion-more than half of the recoveries since the 1986 amendment."
In terms of return on investment, "for every dollar our government spends on federal False Claims Act health-care enforcement, it recovers $20 in return," Getnick says. "That's a 20-to-1 return on investment. Does anyone know of any other program, federal, state, or local, that can boast those results?"
That success, he says, has led to new and expanded whistleblower laws.
"The Federal Deficit Reduction Act enacted in 2005 gives states an incentive to pass their own False Claims Acts, and many states have since done so," he notes. "The IRS whistleblower law aimed at federal tax fraud was enacted in 2006. The SEC and Commodities Futures Trading Commission (CFTC) whistleblower laws were enacted as part of the Dodd-Frank statute in 2010. Also in 2010, the New York State False Claims Act was enhanced by amendments," Getnick points out, "transforming it into the most robust such law in the nation, including a
qui tam tax provision."
"Most recently, in September 2014, U.S. Attorney General Eric Holder called for an increase in the currently limited awards provided for in the whistleblower provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, to further encourage these types of cases. All of these advances speak to the efficacy of incentivizing citizens to join with the government in fighting fraud," Getnick asserts.
But Whitehead is concerned that when the Dodd-Frank legislation was drawn up in 2010 in the wake of the financial crisis, "it was regulation that looked through the rearview mirror. It was responsive to the particular problems that led up to the financial crisis without taking into account broader changes in the financial markets and the need for a new approach to regulation"-which he thinks is still needed.
Still, all those developments seem also to have led to an increase in law firms specializing in whistleblower-related cases,
qui tam and otherwise, many with Cornell Law School connections.
Three Whistleblower Law Practices
Getnick, his wife, Judge
Margaret Finerty, also '78, and other colleagues at Getnick & Getnick got interested in whistleblower law because "it seemed like a natural outgrowth of our firm's early antifraud and anticorruption practice," says Getnick.
"Its antifraud, not antibusiness," he likes to clarify.
Perhaps their firm's most shocking case, and biggest victory to date, involved whistleblower
Cheryl Eckard, a former global quality assurance manager for pharmaceuticals giant GlaxoSmithKline.
In Getnick and Schwab's 2014 whistleblower law class, guest speaker Eckard talked and answered questions about how she had uncovered and reported on serious widespread oversights at the firm's largest manufacturing plant, in Cidra, Puerto Rico.
Among her discoveries were medicines erroneously mixed with one another and packaged that way; antibiotic ointment for babies that contained potentially harmful microorganisms; unsterile antinausea medication for cancer patients; a common antidepressant lacking a key ingredient; and a diabetes drug too weak in some instances, too strong in others, to work correctly. She related how she'd initially been ignored, and then fired by higher-ups after she urged the company to shut down the plant temporarily to fix it when it seemed that no corrections to the harmful manufacturing practices were being made.
"Hearing from an actual whistleblower like Cheryl definitely made the subject more vivid, and it expanded my knowledge of whistleblower law in a way that influences how I approach my current job," says Anders Linderot '14, now an associate at Cravath, Swaine & Moore.
"Cheryl Eckard is the ideal whistleblower client," Getnick says. "Like many people in the health-care industry who go on to be whistleblowers, her first concern was the ability to promote the health of the population that her company served. She was very proud of it, particularly since she played an important role in quality assurance and quality control," he reports.
"A lot of people are under the misimpression that whistleblowers are so driven by the potential reward that they bypass their company compliance systems and don't give the company the chance to get it right on their own," observes Getnick. "Our experience is completely the opposite."
"Cheryl not only tried to get her company to get things right before she was fired, but she also continued trying after she was fired. She worked with GSK's compliance team and sought out its CEO and general counsel, all without any intention of getting a reward and ultimately of even retaining her job, but just because she knew what a serious situation existed in this huge manufacturing plant putting out this adulterated product."
qui tam suit in which Eckard, through Getnick's law firm, sued on behalf of the U.S. government under the federal False Claims Act to recoup lost revenues related to Medicare and Medicaid charges led to a civil settlement in 2010 of $600 million. GSK also paid a substantial criminal fine. Eckard, who received a $96 million award from the federal component of the case and an additional amount from the state component, became the single most highly rewarded whistleblower in U.S. history.
"One of our firm's big concerns now is that since that settlement we've seen a big migration of pharmaceutical manufacturing facilities into India and China," Getnick says.
"We've already seen evidence that these problems have been exported overseas, and that affects us in the United States because the ingredients and the actual pills and tablets find their way back to the United States and are paid for by our government's Medicare and Medicaid programs," Getnick points out.
To adapt to the situation, his law firm is internationalizing its practice so that it can continue to press for compliance.
"Whistleblower laws can be the great equalizer," Getnick says, "developing reliable information, matching that up with public resources, and incentivizing integrity."
Jeanne Markey and
Gary Azorsky, both '83, currently are co-chairs of the whistleblower/ False Claims Act practice at Cohen Milstein Sellers & Toll, a Washington, D.C.-based law firm.
They opened a Philadelphia office to run the firm's False Claims Act practice after having run their own successful practice representing whistleblowers against large pharmaceuticals manufacturers. In that role, they assisted in the return of hundreds of millions of dollars to federal and state coffers.
They are currently co-lead counsel in a large
qui tam action against pharmaceutical giant Wyeth (since acquired by Pfizer) that alleges federal and state governments were defrauded when the company falsely inflated the price of an acid suppression drug, Protonix Oral. (More states-currently thirty-six-have joined with the United States to intervene in the Wyeth case than in any U.S. qui tam case to date.)
"There's an off-label piece to the Wyeth case," say Markey. "The government opted not to intervene in that piece, but we believed in it, so we have gone ahead and pursued it on our own." It involves the claim that Wyeth "promoted Protonix IV, an intravenous drug, to hospitals and hospital pharmacists for indications and at dosages that went way beyond the FDA-approved label," she says.
Qui tam cases often require a lot of patience, have many hoops to jump through, and can take years to be settled, Markey says. In the larger, multiparty case against Wyeth, for example, "after about two years of discovery, fifty depositions, and millions of pages of documents having been reviewed, the motions for summary judgment were finally heard, and we've been waiting for a decision for about three years now."
Azorsky also points out, "Much of what we do is confidential and under seal. Cases involving the SEC and IRS programs never come out from under seal until those agencies announce that they are finally resolved, and it can take many years for that to happen."
Nevertheless, they both enjoy the work because they like working on something bigger than themselves, where the law can be used to achieve public policy goals, says Markey.
"We meet such interesting, intelligent, brave people who come from all over the country-different ages, work experience, very different backgrounds, people that I would never ever run into in the normal course of life," she says.
"And working with government lawyers, both state and federal, has also been extremely satisfying, because by and large they are bright, dedicated, hardworking, and enthusiastic about the work," she says.
"There are many honest businesspeople and corporations in this country," Markey comments, "but unfortunately there are too many who seek to take advantage of the fact that the government can't possibly police every business and every dollar."
That's one reason why a private-public partnership between fraud fighters and the government makes sense. "Even people who don't like the government tend to have very little patience with those who seek to defraud the government, and therefore the taxpayers, of millions or billions of dollars," Markey notes.
Michael Kanovitz '94, partner at Loevy & Loevy in Chicago, had been a highly successful commercial lawyer before he made the jump to whistleblower protection, civil rights, and class action litigation work.
Some of the cases he has since worked on involve the First Amendment and other civil rights issues.
In one of his toughest, he was lead counsel representing
Donald Vance and
Nathan Ertel, two U.S. citizens who'd worked for an Iraqi security company in Baghdad during the Iraq War. Observing their Iraqi employer engaging in arms trading and making payments to a local sheik, they blew the whistle on what they asserted was illegal activity by reporting it to U.S. officials in Iraq.
But instead of being lauded for doing the right thing, they were arrested and held incommunicado in 2006 at a U.S. military prison in Iraq, where they were treated like enemy combatants, they said, subjected to the same kinds of torture techniques-lack of sleep, food, and water, and a constant barrage of noise and other forms of harassment. Vance was held for three months and Ertel for six weeks before being freed. Neither was charged with a crime.
After they were released and returned to the United States, they took their case to Kanowitz at Loevy & Loevy, who sued
Donald Rumsfeld on their behalf, charging that his policies as secretary of defense had led to their arrest and maltreatment.
"When I first heard Don Vance tell his story, I was very circumspect," Kanovitz says. "It was hard to believe that the United States would treat a white guy from the northern suburbs of Chicago like he was in Abu Ghraib." But after talking with his clients he became convinced that they had indeed been abused by the government, and he took on the case.
At the first trial stage: "We wanted the judges to see the issue as one of civil rights, not politics. By keeping the rhetoric down they were able to hear the issue, and lo and behold, we won, which was very welcome news," Kanovitz says. "In essence the trial court said: What Don and Nathan allege happened is against the Constitution, and we're going to let them try to prove that what they say happened really did happen."
After former Secretary of Defense Rumsfeld appealed the case, it was argued in the U.S. Court of Appeals for the Seventh Circuit, in Chicago.
"Sitting on the entire circuit there are probably fifteen judges, but to do the business of the court the cases are assigned to three-judge panels, and usually that's all there is to an appeal," explains Kanovitz. "I expected we'd lose at that stage because appellate courts are usually less sensitive to cases involving the actual plights of people and more concerned about government interests than trial courts are. But I argued it to the panel, and we won. That really started getting people's attention, because now you've got a federal court of appeals saying, yes, the secretary of defense can get sued for this torture.|
"Following that, however, Rumsfeld asked that all twenty judges sitting on the court rehear the case and redecide it, a request that's rarely granted, says Kanovitz. But the "rehearing en banc" was indeed granted, and they lost at that stage. After that, the Supreme Court declined to hear the case, "so there was no place left to go," recounts Kanovitz.
He puts some of the blame for his clients' arrest and torture on the closed system that existed in the war zone of Iraq, with its vague definitions of who the enemy was.
"Obviously the more likely it is that the truth will be found out, the less likely it is that people will take these extreme actions in the first place," he says. "But if they think that they're totally insulated, and if that's normal, it's very hard to stop."
In addition to defending clients' civil rights and First Amendment issues, Kanovitz also takes on
qui tam whistleblower law cases. He has represented more than twenty whistleblower clients in state and federal False Claims Act suits, in such areas as mortgage finance, defense contracting, and environmental issues.
Can a Law School Produce Principled Graduates?
The Law School's graduates include many who have done the right thing when faced with an ethical challenge.
Among the best-known is
Class of 1915, who defended the "Scottsboro boys," nine African American youths falsely accused of the rape of two young white women and sentenced to death in Alabama in 1931. Convinced of their innocence, he survived death threats defending them in the state, and eventually persuaded the U.S. Supreme Court to reverse the convictions of two of them by arguing that blacks were systematically excluded from juries in Alabama.
And there are likely many more, past and present, who have taken an ethical stance instead of the expedient one or the one purely for personal gain. But can a law school like Cornell's actually impart lasting lessons about ethical behavior?
Azorsky thinks so. "Cornell Law School really had an eye toward encouraging the practice of law with a social significance when I attended," he recalls. "They had clinics to assist local residents with Social Security issues and legal problems. It was a real opportunity to learn what it's like to help real people with real problems against large and impersonal institutions."
He still remembers some of the clients he helped and the understanding he gained from doing so. "I remember the unfortunate circumstances those people found themselves in after working hard a substantial part of their lives. Now, during a period of disability they felt as if the bureaucracy was too complicated and that they were given short shrift by corporate America, where they had worked for much of their lives."
The compassion he gained from that experience has helped inform his
qui tam practice today, he says.
Getnick also thinks ethical lessons in law school can have a lasting influence. He cites three former faculty members who have been strong influences on him and his current practice: Professors
G. Robert Blakey,
Ronald Goldstock, and
David Ratner. Blakey and Goldstock had successfully fought organized crime and ran an institute at the Law School on that area. And Ratner, a securities law professor, gave him wise counsel when Getnick was a student member of the Cornell University Board of Trustees and sought a more socially responsible university investment policy.
The values of honesty and integrity that they promoted, along with classroom lessons at the Law School, initially led Getnick to a job in the frauds bureau of famed Manhattan District Attorney
Robert Morgenthau and have since inspired his own firm's
qui tam whistleblower law practice, he says.
"The work my law firm does grows out of a vision, if you will, of seeing a world where the law is an instrument for justice, a means to fight corruption and reform society," says Getnick. "The area of whistleblower law fits squarely in that larger vision"-one of honesty and integrity, that he was first exposed to by Law School faculty.
Those values also have led to his desire to give back to the Law School. In 2010 Getnick and his wife, Judge Margaret Finerty, made a substantial gift to the school to create a Business Integrity Fund named in their honor. The gift supports programs, scholarship, and initiatives relating to business integrity, with a special emphasis on the
qui tam provisions of False Claims Acts and related whistleblower laws. It's an important area for current students to learn more about, Getnick says.
But while influential faculty and programs that promote ethical values, together with the school's roster of illustrious graduates, are indeed something to be proud of, can the Law School really make the claim that its graduates are more principled than those of competing schools?
Perhaps not. Most top-tier law schools probably can point to just as many winners in the ethical sweepstakes department.
But there is at least anecdotal evidence that a law school that pays attention to ethical issues in the faculty it hires, courses it offers, programs it supports, and guest speakers it attracts will reap the rewards in terms of the achievements of its alumni, whether they are whistleblowers, wise leaders, or just wellinformed citizens.
And that, as Stout has pointed out, is good for society as well as business.
Carmen Segarra: Another Wall Street Whistleblower
More than a year before Alayne Fleischmann's story became public, another Cornell Law School alumna, Carmen Segarra '98, was making news with whistleblowing allegations involving two of Wall Street's biggest institutions. As reported by ProPublica and others, Segarra filed suit in October 2013 against the Federal Reserve Bank of New York in the U.S. District Court for the Southern District of New York, alleging that she was terminated because she reported to her superiors that the Goldman Sachs Group did not have a firmwide conflict-of-interest policy.
The court dismissed the case, saying that the statute did not apply to her situation, and Segarra is appealing. In the meantime, however, Segarra revealed a bombshell: she had secretly recorded forty-six hours of meetings and conversations at the Fed. This American Life and ProPublica reported extensively on the recordings, which critics said revealed a culture of deference at the New York Fed to the banks it supervises. Spurred by these news reports, the Senate Banking Committee's Subcommittee on Financial Institutions and Consumer Protection held a hearing on November 21, 2014, to investigate claims of regulatory capture.
One of the four witnesses called to testify before the subcommittee was Robert C. Hockett, the Edward Cornell Professor of Law at Cornell Law School. Hockett, who has worked in a consultative capacity with the New York Fed in recent years, testified that while there is no evidence of "regulatory capture" of the institution as a whole, there have been enough concerns raised about deference on the part of Fed bank examiners as to warrant measures aimed at strengthening regulatory independence. Hockett recommended that the NYFed revisit an earlier proposal to create a "contrarian thinking department."
"They had me on board for awhile as a kind of contrarian thinker," says Hockett, "but it never got so far as the establishment of a department with the same status as other departments, with a head of the department who is prepared to go to bat for his staff and has the same prestige as other heads of departments have."
"Having such a group," says Hockett, "could provide a needed balance and serve as a corrective to 'group think' and the tendency to go along by getting along, which can override the ability to see the flaws in any given policy or solution within any organization."
Hockett says that in general it's important to make conditions as friendly as possible to whistleblowers within agencies that have essential tasks, like the financial regulators have, because "it's a key way to bring in some additional transparency to a process that really should not be opaque. Those regulatory agencies are not directly subject to the democratic process. They are only indirectly subject to it in that they are overseen by our elected representatives, but they are not themselves our elected representatives. . . . We want to make sure that whistleblowers are not too glibly dismissed as mere troublemakers or annoying contrarians."