In early 2006, Richard Bowen was promoted to SVP and Business Chief Underwriter at Citigroup, at that time the largest bank in the world. Bowen was responsible to ensure that the $90 billion in mortgages Citi was purchasing annually from other banks and financial institutions met the company’s credit policies. He soon discovered that over 60% of the mortgages purchased in his largest channel were defective or fraudulent, and yet these mortgages were being securitized and sold to investors with Citigroup giving false certifications to the investors that the mortgages met it’s credit policies.
Bowen started issuing warnings, sending emails and weekly reports throughout the organization, warning about the fraudulent mortgages and huge potential losses and economic destruction. Bowen’s warnings continued for eighteen months and were ignored, probably because of the very significant incentive compensation being paid to management to continue the very profitable buying and selling of mortgages. During this time the volumes of the fraudulent mortgages increasing from 60% to over 80%.
Bowen was committed to being brave and doing the right thing, even if his bosses wouldn’t listen. After reading in the headlines that Citigroup was calling a special board meeting, Bowen took action to warn the board of directors. The day before the board meeting Bowen sent a detailed email with his warnings to Robert Rubin, Chairman of the Board of Directors, also copying the Chief Financial Officer, Chief Auditor and Chief Risk Officer, with Bowen knowing that the executives are required under the Sarbanes Oxley Act to warn the board of directors and investors of breakdowns of internal controls.
Bowen was subsequently stripped of his responsibilities, placed on administrative leave and told not to come back to the bank.
He then testified in July of 2008 before the Securities and Exchange Commission, giving them over 1,000 pages of documents evidencing the fraud he had witnessed. And despite the initial enthusiasm shown by the SEC to pursue management responsible for the fraud, four months later Citigroup, on the verge of failure, was bailed out with over $350 billion in capital and toxic asset guarantees, ultimately resulting in the US government owning 36% of the world’s largest bank. No Citigroup executives were ever held accountable and Bowen was separated from the company, having to sign a very onerous confidentially agreement that he could never discuss what he had witnessed.
Citigroup was not the only bank that followed unethical and illegal business practices. Other banks also sold bad loans, which resulted in a major financial crisis beginning in 2008. After these loans failed, some banks went bankrupt or had to be purchased by other banks. Because banks are critical to the functioning of the US economy, the government has committed more than $16 trillion in taxpayer dollars to bail them out since 2008. The United States fell into a recession that lasted two years, resulting in lost jobs, lost homes, lost retirement savings, and lost economic productivity.
Eventually, investigators of the subprime mortgage crisis called Bowen to testify and, exempt from the terms of his confidentiality agreement, he gave nationally televised testimony before the Financial Crisis Inquiry Commission (FCIC) on April 10, 2010. He also provided twenty-eight pages of written testimony which included, at the request of FCIC staff, many of the damning details of Citigroup management cover-ups and investor fraud. However, Bowen was then forced by the staff to remove from his written testimony most of the damning details originally requested, resulting in Bowen’s shortened twenty page testimony then being published by the Commission as his official testimony.
The New York Times investigated and published a full-page op-ed, entitled “Was This Whistleblower Muzzled?” about Bowen being instructed by Commission staff to remove damaging parts from his written testimony. The article noted the many interactions the president of the law firm representing Citigroup had with the FCIC staff and the fact that a primary member of the staff was subsequently hired as a full partner at another major law firm representing Citigroup a few months after leaving the FCIC. Bowen was quoted by the New York Times saying, “It was devastating. It truly was. From my standpoint, the corruption extends to the highest levels of government. I feel absolutely, completely violated. Every principle that I grew up with, and even when I did a brief stint in the R.O.T.C. and the Air Force, it’s just completely violated.”
The op-ed concludes by quoting Bowen saying “By God, I have got to leave this country better off than the way I found it.”
Bowen is determined to make a positive impact on the United States. He left the banking world and is making a difference as a speaker and teacher. He is an accounting professor at the University of Texas at Dallas, where he teaches future business leaders how to do their work with integrity. Bowen is also an in-demand speaker, touring the nation to educate employers and employees. He teaches them how to create businesses where people are comfortable speaking up and managers are empowered to take problems seriously. His message encourages employees to make personal responsibility (doing the right thing), and courage (speaking up when you see others doing the wrong thing) the foundation of their work every day. Today, he writes a blog, where anyone in the world can read Bowen’s opinions on his past experiences and updates about current banking and oversight concerns. Richard Bowen’s ethics are essential for creating a business world that helps, rather than harms, taxpayers and consumers.
