FBI agents scheduled a meeting in the spring of 2007 with officials at BB&T Corp., one of the nation's largest banking companies, to discuss Village of Penland, a real-estate development in the Blue Ridge mountains of North Carolina. The bank had made some $20 million in loans on a project that, the evidence showed, was little more than a Ponzi scheme.
Amy Stroupe, a fraud investigator for BB&T, had done more than anyone at the bank to uncover the swindle and, as a former police detective, believed she was best suited to brief the FBI on the facts. But bank officials didn't allow her to participate. A BB&T attorney, Stroupe later claimed, told her he didn't want her in the meeting with the government agents because “if they ask you a question, you'll answer it.”
BB&T officials were in damage-control mode, Stroupe would claim in a lawsuit, and didn't want the FBI to get hold of her investigative report, which indicated that a BB&T employee had helped Village of Penland's developer design an unusual and potentially fraudulent feature of its sales program. Borrowers who bought lots in the development didn't have to make the monthly payments; instead, the development firm covered the payments for the purchasers. BB&T officials, Stroupe's lawsuit charged, feared that if the employee's actions came out, the bank would be on the hook not only for the $20 million it had put into the venture, but also for more than $100 million in loans made on the project by other banks.
BB&T fired Stroupe soon after the meeting with the FBI. It claimed that she had violated company policies during her investigation. Stroupe countered that she was actually fired as punishment for pushing too hard on the Village of Penland case. In April, a federal judge agreed, ruling that the bank had violated whistleblower-protection provisions of the Sarbanes-Oxley Act, the federal law passed in 2002 in response to Enron and other corporate scandals. Jeffrey Tureck, an administrative law judge at U.S. Department of Labor, ordered that BB&T give Stroupe her job back and pay her back wages plus interest.
A bank spokesperson, Cynthia Williams, denied Stroupe's allegations and said the judge's ruling was “erroneous.” When it learned of the problems with the Village of Penland, Williams said, BB&T “launched an extensive investigation into the matter and provided substantial material to appropriate authorities” and “made numerous efforts to inform other financial institutions which were also victimized.” The bank vowed to appeal the ruling, but this week, BB&T and Stroupe “resolved all matters relating to the case,” according to the law firm representing Stroupe. The judge's decision was a rare win for a whistleblower under the Sarbanes-Oxley Act. One study found that in the first three years the law was in place, workers who claimed whistleblower protection under the act won relief just 3.6 percent of the time inside the Department of Labor's bureaucracy, which adjudicated initial claims, and just 6.5 percent of the time on appeal.
Statistics aside, most workers know that the odds are stacked against whistleblowers in corporate settings. The idea of risking your job and then having to fight for years to get it back can be daunting. “It's hard to stand up and do the right thing when you're supporting your family,” said Judy Hoyer, a former federal prosecutor who represented Stroupe in her case against BB&T. “Just think about the social ostracism. You spend more waking hours at work than you do at home. You're losing all that. You're losing your job. You're losing your self-esteem.” These difficulties help explain why virtually no one in the mortgage industry or on Wall Street went public during the housing boom to decry the fraud that had taken over the nation's home-lending system.
Even for an experienced detective such as Stroupe, the internal pressures took their toll. In the weeks before she was fired, Stroupe recalled, the hostility she'd encountered over the Village of Penland investigation caused her to be so fearful that, when a colleague informed her of another potential case, she told him that she couldn't look into it. “I was afraid to investigate anything in the bank,” she testified. “It's embarrassing and humiliating to sit here and admit that I had just become a jellyfish.”
Stroupe had taken the job as a fraud investigator at BB&T in 2005, after spending years investigating murders and other crimes for the Cleveland County, N.C., sheriff's office. She gained a reputation within the company as an aggressive investigator. By 2006, her supervisor noted that she had solved 243 of the roughly 250 cases she'd handled, recovering nearly $300,000 for the bank and helping to prevent more than $2.5 million in losses.
Things began to unravel after she got a tip from a coworker about a real estate development in Spruce Pine, N.C. A group of developers had purchased 1,200 acres and divided the land into 2,000 lots. The marketing materials for the Village of Penland painted a picture of a large community of high-end homes, wide streets, and boutiques.
As Stroupe sifted through BB&T's loan files, she identified a number of red flags. The same photograph, for example, was used in many of the loan files, and undeveloped lots were being sold for $160,000, even though some were as small as a quarter of an acre. She felt certain that the raw land was being sold at grossly inflated prices. Federal prosecutors would later conclude that the developers had diverted much of the money that had poured in from lot sales to other projects, including a spa in Brazil.
When Stroupe drove out to the Village of Penland to see for herself, there wasn't much to see, considering the project had been under way for years. There were gravel roads, homemade street signs, a lake under construction, and, well, “just a mountain,” Stroupe later recalled. Not a single house had been built. “I didn't see where $20 million could have been spent,” she testified.
As she informed higher-ups about what she was finding, Stroupe claimed, she began to get pushback. One regional bank executive, she claimed, chewed her out for being too accusatory of the BB&T sales manager who had put together the loans that had been used by borrowers to purchase lots at the development. And despite her warnings about fraud, bank officials approved three more Village of Penland loans that had already been in the pipeline.
BB&T fired the sales manager. Soon after, though, the bank also informed Stroupe that she, too, was being terminated. The reason? The bank claimed she had spoken out of turn to a coworker about her conflicts with the regional bank executive and that she had missed a few hours from work without permission to go to a firing range to keep up her law-enforcement weapons certification.
Judge Tureck didn't buy the bank's rationale. “I find it virtually unfathomable that BB&T would fire an employee as highly regarded as Stroupe, and who had just recently provided invaluable service to BB&T, over one or two essentially minor issues,” he wrote.
During an administrative hearing last year, Stroupe's case got a boost from testimony by Joseph Yohe, who worked as regional fraud manager for BB&T in the Washington, D.C., suburbs of Virginia. Yohe testified that the bank had a double standard. If a teller or some other peon stole $2,000, management wanted the wrongdoer led away in handcuffs. But if a top income-producer was involved in a multimillion-dollar fraud, Yohe said, investigators ran into “one roadblock after another” from the chain of command. When Yohe and his investigators zeroed in on a top producer who appeared to be involved in a huge Ponzi scheme in Northern Virginia, “We were basically told: ‘Stop where you're going. You're going someplace where you shouldn't be.' ”
Yohe said he ran into more trouble when his team's investigations required him to conduct interviews with high-level executives. “When you challenge somebody in senior management,” he said, “everything changed quite quickly.” Yohe said he was told he wasn't “adapting to the corporate environment.”
In a statement, the bank denied Yohe's assertions. It noted that, during cross examination, Yohe had acknowledged that some top producers had been fired after they'd been caught in improprieties.
Five people connected with Peerless Real Estate Services, the firm that put together the sham development, eventually pled guilty to federal criminal charges. Ruling in Stroupe's favor in her employment case, Judge Tureck made note of the loose practices that had allowed some $20 million in mortgages to be green-lighted before BB&T shut off the flow of cash. By making loans to bankroll the lot purchases, the judge said, “BB&T was not just a victim of fraud committed by others; it was aiding Peerless in committing the fraud.”
Williams, the bank spokesperson, disagreed. The episode was “a case of external fraud, not internal fraud,” and the bank was a victim, not an enabler. “It does not make sense,” she said, “for a bank to knowingly make loans on properties that are not worth what the borrower has paid for them.”
Perhaps not, but during the late, great mortgage boom, many big banks did just that. The lure of short-term profits prompted them to push through loans of dubious quality — and to work to suppress the internal voices that tried to make the point that the loans indeed didn't “make sense.”
This is Part 2 of a two-part series, for which The Investigative Fund at The Nation Institute provided research support.