(FROM THE WALL STREET JOURNAL 4/23/15)
By Christina Rexrode
On television, Jim Marchese is the trash-talking bad boy from
"The Real Housewives of New Jersey." His off-camera role is
lesser-known but still lucrative: Mr. Marchese is a whistleblower
who twice has collected seven-figure awards for tipping off
authorities to corporate wrongdoing.
The small mortgage firm Mr. Marchese owns in Shrewsbury, N.J.,
most recently collected $8.5 million for helping kindle the Justice
Department's record $16.65 billion settlement last summer with Bank
of America Corp., which was accused of selling shoddy mortgage
investments in the run-up to the financial crisis.
Before that, in 2007, Mr. Marchese received $1.6 million after
reporting his former employer, a Seattle pharmaceuticals firm now
called CTI BioPharma Corp., for allegedly defrauding Medicare.
"I'm trained as an attorney, I'm Sicilian and I'm from New
Jersey," said Mr. Marchese, 45 years old. "If I see you kick a
puppy, I'm going to say something. It's not within me to not say
something."
Whistleblower lawsuits allow ordinary citizens to sue on behalf
of the U.S. government. If a case is successful, the tipster can
receive a portion of the settlement money. Since the financial
crisis, many whistleblower complaints have targeted financial
institutions, and the government has paid tens of millions for
insider tips that led to settlements against UBS AG,
GlaxoSmithKline and other firms.
Against that backdrop, a number of regulators are calling for
even higher payouts and greater protections for whistleblowers as a
means of rooting out wrongdoing on Wall Street and beyond.
Like many whistleblowers, Mr. Marchese considers himself a
lonely truth-teller speaking up on behalf of taxpayers and
shareholders. Yet he also is a polarizing character. On the show,
he is known for his blunt opinions and salty language. In one
much-blogged-about moment from the television show, another cast
member accused him of "douchebaggery."
"Average people don't blow the whistle," said C. Fred Alford, a
University of Maryland professor and author of a book about the
psychology of whistleblowers.
Mr. Alford said tipsters are complicated, often "obsessional"
people and "not always the most relaxed, easygoing people in the
world."
What makes Mr. Marchese particularly unusual is his success.
Whistleblower experts said they didn't know of another individual
who has received two sizable awards in two different industries --
much less two seven-figure awards.
"I don't know if it's amazing," said Amber Marchese of her
husband's serial whistleblowing, "or unlucky."
The Marcheses made their debut last year as cast members of the
sixth season of "The Real Housewives of New Jersey," the Bravo
reality show savored by viewers for its scenes of infighting among
the upper crust.
They joined about six years after Mr. Marchese wrapped up his
lengthy effort to get paid for blowing the whistle on his former
employer, which was then known as Cell Therapeutics. The company in
2007 paid $10.5 million to settle charges that it fraudulently
marketed a cancer drug. The firm, which didn't admit to any
wrongdoing, declined to comment.
Mr. Marchese submitted a claim for 25% of the award, as allowed
by law, but prosecutors took the unusual step of asking a judge to
deny the payment. In court filings, the Justice Department said he
had initiated the scheme while working as a drug rep and then
covered up his role.
A judge ruled in Mr. Marchese's favor and awarded him 15% of the
settlement, or $1.6 million, though she said he should have brought
his concerns to the government more quickly.
Mr. Marchese bought his mortgage company when it was flailing
after the financial crisis, using a combination of his
whistleblower award and funds raised from investors.
Like its peers in the industry, Mortgage Now made loans to home
buyers and then sold many of them to other companies, including
Countrywide Financial Corp., which Bank of America eventually
bought in 2008. Bank of America, in turn, sold many of those loans
to Fannie Mae and Freddie Mac, the government-sponsored mortgage
giants.
When the housing market cratered, Fannie and Freddie started
asking the bank to reimburse them for loans that home buyers
couldn't repay, and Bank of America likewise asked for money back
from Mortgage Now.
Mr. Marchese estimates his company paid the bank about $6
million, for loans that it sold before Mr. Marchese bought the
company.
Around early 2010, Mr. Marchese says he was sitting at the
hospital waiting for results from his wife's breast-cancer
treatment and flipping through Bank of America's earnings reports
to distract himself. He was surprised to see that the firm's
mortgage-banking income had more than doubled in 2009, even amid
the fallout from the financial crisis. Mr. Marchese says that made
him suspicious: How could the bank have such high income if so many
mortgages were going bad?
Mr. Marchese suspected that Bank of America wasn't turning all
the money over to Fannie and Freddie. In effect, he guessed that
the bank was double-dipping, benefiting from reimbursements both
from companies like his own and the government.
"I believe in capitalism, and I believe in making as much money
as you can," Mr. Marchese said. "But capitalism is not subsidizing
the big banks."
In its August settlement with Bank of America, the Justice
Department said it had investigated some allegations by Mortgage
Now, including whether Bank of America asked Fannie and Freddie to
reimburse it for soured mortgages even after the bank already had
received payment from other lenders.
Bank of America declined to comment. The bulk of the soured
mortgages now attributed to Bank of America were made by
Countrywide.
In the end, the Justice Department concluded that Mortgage Now's
contribution was worth $50 million of the $16.65 billion
settlement. Three other whistleblowers, all of whom had worked for
Countrywide or subsidiaries, received larger payouts of roughly $50
million or more each.
Access Investor Kit for Bank of America Corp.
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Access Investor Kit for CTI BioPharma Corp.
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http://www.companyspotlight.com/partner?cp_code=P479&isin=US12648L1061
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