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Whistleblower Examples: Alayne Fleischmann And Securities Fraud

by Arttu Vesterinen

Whistleblowing

The EU’s Directive pushed reporting and corporate whistleblowing policies into public discussions in 2019. However, whistleblowers have always been around. What the directive is introducing - if not emphasising - is the need to protect those that report breaches and crimes. 

There are many public cases that have illustrated the need for this measure, as well as the negative repercussions whistleblowers have had to face as a result of their stepping forward. But there may be no better example of this than the story we are about to tell.

The Story of Alayne Fleischmann

 

Alayne Fleischmann was an associate at JPMorgan Chase who ensured that the bank’s mortgage purchases were up to its credit standards. Essentially, she was in charge of mortgage quality assurance. 

At the end of 2007, and the beginning of 2008 (when the global financial crisis occurred), Fleischmann informed her employers of irregularities she had discovered. JPMorgan Chase was fabricating and selling below-standard mortgages. In addition, they were exaggerating their value to their investors. 

Fleischmann challenged her diligence manager on faulty mortgages and escalated the matter to an executive at the bank. Then, she sent a letter to the managing director, William Buell. All of these reports were ignored. 

Throughout her two years at the firm, she and other diligence managers were forced to alter numbers and lie about the quality of mortgages. Then, in February 2008, she was dismissed from the company. The reason? “General layoffs”.  

More determined than her counterparts might have been, Fleischmann decided to share the information she had. So, she shared what she knew with the Securities and Exchange Commission and the Justice Department. 

Her engagement with the government department was long and ongoing. However, the government had its own agenda. They hoped to show strength and a tough hand against the role that bank fraud and crime played in the global financial crisis. 

This meant that Fleischmann’s efforts did not lead to criminal action against JPMorgan Chase and its employees. Rather, they had to pay a $9-billion dollar settlement (much of which they could treat as just a tax write-off), which barely left a mark on JPMorgan Chase and its reputation.

 

Why The EU Directive Helps To Prevent Risks Of Enabling Whistleblowers

 

Fleischmann faced a number of reporting challenges including:

  • finding the right internal representative to report to
  • untrustworthy channels
  • and retaliation through dismissal 

These are the whistleblowing risks that the EU Directive attempts to alleviate. 

The regulation makes whistleblowing retaliation illegal. It requires organisations to set up the necessary channels and policies to protect whistleblowers. The Directive also stipulates that companies have to establish anonymous reporting options for reporter safety. 

All these elements support the protection of whistleblowers, reducing the risks they have to face.

 

Final Thoughts

 

Essentially, the EU has attempted to secure the whistleblowing process. It aims to protect whistleblowers and minimise the risks that come with stepping forward. Cases like Alayne Fleischmann’s have proven that whistleblowing can have a negative impact on the reporter. 

Thus, the Directive plays an important role in making whistleblowing safe and in encouraging people to come forward.

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Whistleblowing

Arttu Vesterinen

Chief Executive Officer