Corporate whistleblowers get silent treatment

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(TomDispatch) What's worse: to be persecuted and indicted for trying to expose an act of wrongdoing -- or to be ignored for doing so?

Whistleblowers have been under intense scrutiny in Washington lately, at least when it comes to the national security state. In recent years, the Obama administration has set a record by accusing no fewer than six government employees, who allegedly leaked classified information to reporters, of violating the Espionage Act, a draconian law dating back to 1917. Yet when it comes to workers who have risked their careers to expose misconduct in the corporate and financial arena, a different pattern has long prevailed. Here, the problem hasn't been an excess of attention from government officials eager to chill dissent, but a dearth of attention that has often left whistleblowers feeling no less isolated and discouraged.

Consider the case of Leyla Wydler, a broker who, back in 2003, sent a letter to the Securities and Exchange Commission (SEC) about her former employer, the Stanford Financial Group. A year earlier, it had fired her for refusing to sell certificates of deposit that she rightly suspected were being misleadingly advertised to investors. The company, Wydler warned in her letter, "is the subject of a lingering corporate fraud scandal perpetrated as a 'massive Ponzi scheme' that will destroy the life savings of many, damage the reputation of all associated parties, ridicule securities and banking authorities, and shame the United States of America."

Texas tycoon found guilty in $7B Ponzi scheme

It was a letter that should have woken the dead and, as it happened, couldn't have been more on target. Wydler didn't stop with the SEC either. She also sent copies to the National Association of Securities Dealers (NASD), the trade group responsible for enforcing regulations throughout the industry, as well as various newspapers, including the Wall Street Journal and the Washington Post. No one responded. No one at all.

In the fall of 2004, Wydler called the examination branch of the SEC's Fort Worth District Office to relay her concerns. A staff person did hear her out, but once again nothing happened. More than four years later, as the aftershocks of the global financial meltdown continued to play out, the news finally broke that Stanford had orchestrated a $7 billion Ponzi scheme which cost thousands of defrauded investors their savings.

Making Law for Wall Street

Wydler might have preferred the attention of the Espionage Act to the dead silence that greeted her efforts, and she was hardly alone. As with her, so with Eileen Foster, a former senior executive at Countrywide Financial who, in 2007, uncovered evidence of massive fraud -- forged bank statements, bogus property appraisals -- perpetrated by a company that played a major role in the subprime crisis that eventually caused the U.S. and global economies to implode. No one listened to her then and no one -- in the government at least -- seems to care now, either.

Interviewed recently on "60 Minutes," Foster said she would still be willing to provide the names of people at Countrywide who belong in jail, if she were summoned to testify before a grand jury. She may never get the opportunity. As "60 Minutes" reported, a Justice Department that has gone to such extraordinary lengths to prosecute national security whistleblowers has made no effort to contact her.

(Below, watch part one of the "60 Minutes" segment featuring Foster that CBS broadcast last December)

"60 Minutes" | Prosecuting Wall Street
Video: Part one of the segment
Video: Part two of the segment

The experiences of corporate whistleblowers like Foster and Wydler underscore a truth highlighted by legal scholar Cass Sunstein in his book "Why Societies Need Dissent." The voices of dissidents who have the courage to bring uncomfortable news to light -- information that can prevent disastrous economic or other blunders from happening -- matter only to the extent that anyone pays attention to them.

"A legal system that is committed to free speech forbids government from silencing dissenters," observed Sunstein. "That is an extraordinary accomplishment." But as he went on to note, the formal existence of this right hardly ensures that individuals who exercise it in situations that cry out for opposition have an impact. "Even in democracies, disparities in power play a large role in silencing dissent -- sometimes by ensuring that dissenters keep quiet, but more insidiously by ensuring that dissenters are not really heard."

And it seems that, if the present House of Representatives has anything to say about it, the law will soon ensure that corporate whistleblowers are silenced anew. Although the financial meltdown of 2008 didn't exactly inspire the Justice Department to hold high-ranking Wall Street executives accountable (to date, not one CEO has been prosecuted for fraud), the abusive practices and billion-dollar scams that regulatory agencies somehow overlooked did prompt some reform. As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress put in place new rules that, at least theoretically, enhanced the protections and incentives available to whistleblowers.

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Eyal Press is the author of the new book "Beautiful Souls: Saying No, Breaking Ranks and Heeding the Voice of Conscience in Dark Times" (Farrar, Straus & Giroux). To listen to Timothy MacBain's latest Tomcast audio interview in which Press discusses the treatment of American whistleblowers, click here, or download it to your iPod here. Follow Eyal Press on Twitter @EyalPress. This piece originally appeared on TomDispatch. The opinions expressed in this commentary are solely those of the author.

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