Kroft: How high up in the company?
Bowen: My warnings, which were echoed by my manager, went to the highest levels of the Consumer Lending Group.
Bowen also asked for a formal investigation to be conducted by the division in charge of Citigroup's internal controls. That study not only confirmed Bowen's findings but found that his division had been out of compliance with company policy since at least 2005.
Kroft: Did the situation improve?
Bowen: I started raising those warnings in June of 2006. The volumes increased through 2007 and the rate of defective mortgages increased to an excess of 80 percent.
Kroft: So the answer is no?
Bowen: The answer is no, things did not improve. They got worse.
Not only was Citigroup on the hook for massive potential losses, Bowen says it was misleading investors about the quality of the mortgages and the mortgage securities it was selling to its customers. We managed to get our hands on a prospectus for a mortgage-backed security that was made up of home loans that Bowen had tested.
Kroft: It says, "These loans were originated under guidelines that are substantially, in accordance with Citi Mortgage's guidelines, for its own originations, its own mortgages." Is that a true statement?
Kroft: This is not some insignificant statement. This is-- speaks to the quality of the-- of the mortgages that-- that investors are putting their money in.
Kroft: And it's wrong?
Kroft: And people at Citigroup knew it was wrong. Had been warned that it was wrong, had been told that it was wrong.
In early November of 2007, with Citi's mortgage losses mounting, Bowen decided to notify top corporate officers directly. He emailed an urgent letter to the bank's chief financial officer, chief risk officer, and chief auditor as well as Robert Rubin, the chairman of Citigroup's executive committee and a former U.S. treasury secretary. The letter informed them of "breakdowns of internal controls" in his division and possibly "unrecognized financial losses existing within our organization."
Kroft: Why did you send that letter?
Bowen: I knew that there existed in my area extreme risks. And one, I had to warn executive management. And two, I felt like I had to warn the Board of Directors.
Kroft: You're saying there's a serious problem here, you've got a big breakdown in internal controls. You need to pay attention. This could cost you a lot of money.