Consider the following scenarios where people received bonuses as a result of fraud:
1) Short of troops to fight in Iraq and Afghanistan a decade ago, the California National Guard enticed thousands of soldiers with bonuses of $15,000 or more to reenlist and go to war. Audits reveal widespread bonus overpayments by the California Guard at the height of the wars. Investigations determined that lack of oversight allowed for widespread fraud and mismanagement by California Guard officials under pressure to meet enlistment targets. Army Master Sgt. Toni Jaffe, the California Guard’s incentive manager, pleaded guilty in 2011 to filing false claims of $15.2 million and was sentenced to 30 months in federal prison. Three officers also pleaded guilty to fraud and were put on probation after paying restitution. (source: Los Angeles Times)
2) For years, mortgage giant Fannie Mae has produced smoothly growing earnings. And for years, observers have wondered how Fannie could manage its inherently risky portfolio without a whiff of volatility. Now, thanks to Fannie's regulator, we know the answer. The company was cooking the books. Big time. Fannie set aside an artificially large cash reserve. And -- presto -- in any quarter its managers could reach into that jar to compensate for poor results or add to it to dampen good ones. This ploy, according to Ofheo, gave Fannie "inordinate flexibility" in reporting the amount of income or expenses over reporting periods. This flexibility also gave Fannie the ability to manipulate earnings to hit -- within pennies -- target numbers for executive bonuses. In one particularly volatile year target EPS for maximum payout was $3.23 and Fannie reported exactly . . . $3.2309. This bull's-eye was worth $1.932 million to then-CEO James Johnson, $1.19 million to then-CEO-designate Franklin Raines, and $779,625 to then-Vice Chairman Jamie Gorelick. (source: Wall Street Journal)
Here's what our government did. In the case of Fannie Mae it identified $10.6 billion in fraudulent accounting motivated by greed, executive's desire to receive maximum bonuses. The report showed over $87 million in bonus payouts during the period of accounting fraud by "arrogant and unethical executives."
James Johnson, the recipient of nearly $2 million in fraudulent Fannie Mae bonuses in the report, helped Democratic Presidential Candidate Barack Obama pick his running mate. Johnson received much of the blame for Fannie Mae's collapse in the 2008 financial crisis, according to two investigative reporters.
Fannie Mae Vice Chair Jamie Gorelick garnered nearly $4.5 million in fraudulent bonuses. She went to work for the law firm that defended Fannie's fraudulent accounting, WilmerHale. She led the BP Deepwater Horizon Oil Spew defense team.
Executive Vice President for Law/Policy Tom Donilon defended Fannie Mae by going after the investigating agency. Donilon received nearly $3 million in ill begotten gains from his time as a Fannie Mae executive. He became President Barack Obama's National Security Advisor. Currently Donilon is Vice Chair of O'Melveny, a giant law firm, and Senior Director, BlackRock Investment Institute. BlackRock featured Donilon in a Russia-Ukraine scenario planning section of a 2014 investment report.
The government let Johnson, Donilon and Gorelick keep every penny of their fraudulent gains. That same government is going after 10,000 soldiers who received re-enlistment bonuses as a result of Pentagon incompetence or malfeasance:
Nearly 10,000 soldiers, many of whom served multiple combat tours, have been ordered to repay large enlistment bonuses — and slapped with interest charges, wage garnishments and tax liens if they refuse — after audits revealed widespread overpayments by the California Guard at the height of the wars last decade.
Roughly 9,700 current and retired soldiers have been told by the California Guard to repay some or all of their bonuses and the recoupment effort has recovered more than $22 million so far.
There are two systems of justice in our country. Rules for the politically connected, the "Just Us" crew, are far different from those for common folk. The soldier bonus clawback is but one example.
Update 2-12-17: Only two Fannie Mae executives had to return a small portion of their ill gotten gains. Johnson, Donilon and Gorelick got to keep every rotten penny.
