Through the Eyes of a Whistle-Blower How Sherry Hunt Spoke .docx

Through the Eyes of a Whistle-Blower: How Sherry
Hunt Spoke Up About Citibank's Mortgage Fraud
Case
Author: Adam Waytz & Vasilia Kilibarda
Online Pub Date: March 06, 2016 | Original Pub. Date: 2014
Subject: Business Ethics, Organizational Culture, Leadership &
Ethics
Level: Intermediate | Type: Direct case | Length: 7034 words
Copyright: © 2014 Kellogg School of Management at
Northwestern University
Organization: Citigroup Inc. | Organization size: Large
Region: Northern America | State:
Industry: Financial service activities, except insurance and
pension funding
Originally Published in:
Waytz, A. , & Kilibarda, V. (2014). Through the Eyes of a
Whistle-Blower: How Sherry Hunt Spoke Up
About Citibank's Mortgage Fraud. 5-214-256. Evanston, IL:
Kellogg School of Management, Northwestern
University.
Publisher: Kellogg School of Management
DOI: http://dx.doi.org/10.4135/9781473972254 | Online ISBN:
9781473972254
javascript:void(0);
javascript:void(0);
javascript: void(0);

http://dx.doi.org/10.4135/9781473972254
© 2014 Kellogg School of Management at Northwestern
University
This case was prepared for inclusion in SAGE Business Cases
primarily as a basis for classroom discussion
or self-study, and is not meant to illustrate either effective or
ineffective management styles. Nothing herein
shall be deemed to be an endorsement of any kind. This case is
for scholarly, educational, or personal use
only within your university, and cannot be forwarded outside
the university or used for other commercial
purposes. 2020 SAGE Publications Ltd. All Rights Reserved.
This content may only be distributed for use within Florida
International Univ.
http://dx.doi.org/10.4135/9781473972254
SAGE
University
SAGE Business Cases
Page 2 of 17
Through the Eyes of a Whistle-Blower: How Sherry Hunt Spoke
Up About
Citibank's Mortgage Fraud
http://dx.doi.org/10.4135/9781473972254

Abstract
In 2011, Sherry Hunt was a vice president and chief underwriter
at CitiMortgage headquarters
in the United States. For years she had been witnessing fraud, as
the company bought billions
of dollars in mortgage loans from external lenders that did not
meet Citi credit policy and sold
them to government-sponsored enterprises (GSEs). This resulted
in Citi selling to GSEs such
as Fannie Mae and Freddie Mac pools of loans that were
considerably defective and thus likely
to default. Citi had also approved hundreds of millions of
dollars' worth of defective mortgage
files for U.S. Federal Housing Administration insurance. After
reporting the mortgage defects in
regular reports, notifying and working closely with her direct
supervisor (who was subsequently
asked to leave Citi after alerting the chairman of the board to
these issues) to stop the purchase
of defective loans, leaving anonymous tips on the FBI's and the
Department of Housing and
Urban Development's websites, and receiving threats from two
of her superiors who demand-
ed that she change the results of her quality control unit's
reports, the shy and conflict-avoidant
Hunt had to decide who she should tell about the fraud, and
how.
The case gives students the opportunity to recommend how
Hunt should proceed based on their
analysis of the stakeholders involved. To aid instructors, the
case includes Kellogg-produced
videos of Hunt—the only on-camera interviews she has ever
given—explaining what happened
after she reported the fraud to Citi HR and, later, the U.S.

Department of Justice. Within the
case, students are also briefly exposed to legislation and bodies
pertinent to whistle-blowing in
the United States, including the Dodd-Frank Act, the Sarbanes-
Oxley Act, and the SEC Office
of the Whistleblower.
This case won the 2014 competition for Outstanding Case on
Anti-Corruption, supported by the
Principles for Responsible Management Education (PRME), an
initiative of the UN Global Com-
pact.
Case
On March 22, 2011, Sherry Hunt, vice president and chief
underwriter at CitiMortgage, raced down the end-
less rows of cubicles until she reached her office and closed the
door behind her. Her hands were shaking,
her heart pounding. Moments before, Jeffery Polkinghorne—an
executive three levels above her—had re-
quested an impromptu meeting with Hunt and her colleague in a
conference room. His face had reddened as
he raised his voice and pointed at her. If the mortgage defect
rate reported by Hunt and her quality control
unit did not fall substantially and immediately, he said,
menacingly, “It's your asses on the line.” 1
As she struggled to regain her composure, Hunt considered her
options. She knew the defects she was find-
ing were legitimate and some even indicated fraud. They put
Citi at serious risk, and she could not sign off
on reports that obscured the facts. However, the financial crisis
had hit the mortgage industry hard and there
were no available jobs for someone with her qualifications.

She fell heavily into a chair and put her head in her hands. She
felt both scared and angry that she was being
asked to fudge reports. What was she going to do?
Sherry Hunt
Sherry Hunt was raised in rural Michigan. The reserved and
warm mother of two sons, she worked hard, prid-
SAGE
University
SAGE Business Cases
Page 3 of 17
Up About
ed herself on following the rules, and built a long, successful
career in the mortgage i business. She began
her career as a mortgage processer at a small bank in Alaska
and later returned home to the Midwest, mov-
ing from state to state as she worked her way up the corporate
ladder at some of the top banks in the United
States. All the while, however, Hunt stayed true to her roots—
raising horses, fishing in her free time, and play-
ing legendary cowgirl Annie Oakley in Wild West shows in her
community.
When she was 47, her sons grown and off starting families of
their own, she moved to Missouri in November

2004 to accept a post as vice president and chief underwriter of
the correspondent channel at CitiMortgage's
headquarters. “I loved the mortgage business. I was helping
people purchase their first homes or refinance
[their homes] to pay for their kids' college educations. It was a
thrill to put together the puzzle of someone's
life, making sure they meet all the different rules. Everyone is
different. I was never bored… it was fascinat-
ing,” said Hunt. 2
Citigroup, REL, and the Correspondent Channel
Citigroup (Citi) was a multinational financial services company
headquartered in Manhattan, New York. It was
the sixth largest residential lender in the United States in 2004
and was rapidly growing. 3 Shortly after Hunt
joined the company in 2004, Citigroup restructured. The
consumer lending group was formed, which brought
together Citi's consumer lending activities, including prime and
subprime mortgages, home equity, student
loans, and automobile loans. All of the mortgage-lending
operations within the consumer lending group were
then grouped under the real estate lending (REL) division. 4
REL comprised the following subsidiaries: CitiMortgage (prime
ii mortgage lending), CitiFinancial Mortgage
(subprime iii mortgage lending), and Citi Home Equity. 5
Mortgage lending was an important line of business
for Citi and all large U.S. banks, as mortgages kept them in the
black. A dependable and low-risk source of
profits, mortgages were typically the last expense homeowners
defaulted iv on when faced with financial trou-
bles. 6
When REL was formed, most of the new upper management
came from CitiFinancial. 7 Among them was

Richard Bowen, who became REL's business chief underwriter
for correspondent channels. Correspondent
channels were the channels through which Citi purchased
mortgages from external mortgage companies
(called correspondent lenders) and then sold the mortgages to
investors—primarily government-sponsored
enterprises (GSEs) such as Fannie Mae and Freddie Mac, as
well as government entities such as the
Government National Mortgage Association (“Ginnie Mae”).
There were two distinct underwriting workflows
for processing loans that were purchased from correspondent
lenders (see Figure 1 ). Underwriting is the
process by which a bank checks that each mortgage file contains
all policy-required documents (e.g., proof of
income, employment verification, etc.) and meets the minimum
criteria established by a bank's credit policy.
After receiving this promotion, Bowen thought it critical to
familiarize himself with REL's entire correspondent
business, which he oversaw from Citi's new office in Irving,
Texas. Having come from CitiFinancial, he
was inexperienced in prime mortgage underwriting, so he
visited teams across the country that reported to
him—from Hunt and her team at CitiMortgage in Missouri, who
worked on the underwritten flow, to the em-
ployees that sat on the floor above his, many of whom worked
on CitiMortgage's delegated flow.
Figure 1: The Two Flows of the Correspondent Business
Channel
Source: Testimony of Richard M. Bowen, III, Hearing on
Subprime Lending and Securitization and Govern-
SAGE

University
SAGE Business Cases
Page 4 of 17
Up About
ment Sponsored Enterprises, Presented to the Financial Crisis
Inquiry Commission, April 7, 2010, and Sherry
Hunt, in interview with the authors, April 14, 2014.
“There was a real learning curve for Richard and the folks from
CitiFinancial. They didn't understand my busi-
ness [prime lending], and I didn't understand theirs [subprime
lending],” recalled Hunt. 8 In learning about
the work of the underwriters in his building, Bowen began to
uncover problems. “I discovered that [front-line
employees] were telling me one thing, yet their boss was telling
me something completely different.” 9 Their
boss was Connie v —Hunt's direct supervisor, who reported
directly to Bowen and who led both the under-
written and delegated flows. Bowen suspected that Connie was
being dishonest, as Hunt had informed him
that often when she would tell Connie that a loan was bad and
that Citi should not purchase it, Connie would
overrule her. 10 He dug deeper and found that reporting done by
the quality assurance (QA) underwriters
whom Connie oversaw was dubious.
QA was the group of underwriters who underwrote a small
sample of already-purchased loans obtained

through the delegated flow. The QA underwriters would assign
each mortgage file in their sample an agree,
disagree, or agree-contingent decision. This signified whether
QA did or did not agree with the originating
mortgage company (the correspondent lender) that the file
adhered to Citi credit policy. The agree-contingent
designation meant that the QA underwriters agreed with the
originating mortgage company, pending the file's
receipt of missing policy-required documents. The results were
then reported to a committee, which Bowen
had recently joined.
While on the committee, Bowen learned of Citi's expectation
that if the flow were functioning properly, 95 per-
cent of loans purchased through the delegated flow should
receive the agree designation. In 2006, the results
that QA reported to the committee confirmed the 95 percent
agree to 5 percent disagree ratio. However, upon
further investigation, Bowen discovered that the total of the
agree and agree-contingent decisions was being
reported as the agree rate. To Bowen's shock, most of the Citi
underwriters with whom he spoke believed
that over half of the 95 percent agree rate comprised agree-
contingent files that were missing required docu-
ments. The reports should have reflected that QA's results were
40 percent agree, 55 percent agree-contin-
gent, and 5 percent disagree. This meant that 60 percent of the
mortgages that Citi had purchased in 2006,
had represented and warranted, then had sold to GSEs were
likely defective. 11
SAGE
University
SAGE Business Cases

of 17
Up About
Bowen quickly acted to improve the accuracy of reporting and
to terminate Connie in September 2006. Now,
Hunt reported directly to Bowen (see Exhibit 1). “I was very
impressed with Sherry when we met in Missouri.
She's a very sharp lady. That's why I wanted to promote her,”
Bowen recalled. 12
What does “reps and warrants” mean?
Citi represents and warrants to GSEs that the mortgages sold to
them comply with Citi policy. If a
mortgage file was not in compliance with Citi policy or had
missing policy-required documentation, the
mortgage file was considered defective. If a mortgage that Citi
represented and warranted was discov-
ered to be defective, the owning GSE could force Citi to
purchase it back.
What is a defect?
Defects ranged from missing tax forms and missing signatures
on documents to more egregious
fraud such as straw buyers, borrowers who listed nonexistent
employers, and loan officers who fabri-
cated borrower income.
CitiMortgage

Far from Citigroup's new Irving office and its Manhattan
headquarters stood three glass buildings in O'Fallon,
Missouri—CitiMortgage's headquarters. This prime mortgage
lending organization employed over 3,000 peo-
ple.
Prior to the U.S. financial crisis in 2008, CitiMortgage
purchased approximately $90 billion annually in home
loans from correspondent lenders. 13 Different teams within
CitiMortgage worked on the different parts of
this high-volume pipeline. The sales team actively solicited and
purchased loans from correspondent lenders
(smaller banks that, to increase their cash flow, would sell their
mortgages to Citi). Underwriting teams
checked that mortgage files were complete and adhered to
policy—both Citi's credit policy and any additional
criteria required by government entities, such as the Federal
Housing Administration (FHA), in order for
that entity to insure vi a loan. Finally, another team sold the
mortgages to GSEs, which bundled the loans into
securities to sell to investors. 14
Hunt's Team
Hunt—who by 2007 was CitiMortgage's chief underwriter for
both of the correspondent flows—had 65 direct
reports working the underwritten and delegated flows in
O'Fallon, as well as a group of indirect reports work-
ing in QA in Irving. In ensuring that loans met Citi's standards,
her team gave Citi's seal of approval to in-
vestors (i.e., the documentation indicated that borrowers were
likely to repay the mortgages). This respon-
sibility took on an amplified level of importance with the FHA,
the largest insurer of mortgages in the world,
which was part of the U.S. Department of Housing and Urban

Development (HUD). Unlike Fannie Mae
and Freddie Mac—which double-checked samples of the
mortgages they guaranteed for defects—the FHA
did not have this layer of quality control. Instead, it delegated
all quality control to lenders. From 2007 to 2012,
the FHA increased the number of loans it guaranteed from $700
billion to $1.1 trillion, all of which depended
SAGE
University
SAGE Business Cases
Page 6 of 17
Up About
upon the quality control processes of lenders (such as Citi and
its correspondent lenders) to ensure that U.S.
taxpayers' dollars that supported the FHA were being
responsibly invested. 15
Hunt's team found all kinds of defects in the loans that Citi had
already purchased from correspondent
lenders. “For example, to get an FHA loan, you have to live in
the home as your primary residence. We found
a guy who had nine [FHA loans] with nine different banks,
saying he was going to live in all of these houses,
and then he didn't live in any,” Hunt recalled. 16 And the
borrowers were not always the perpetrators. Some-
times it was the bank's loan officers.

“We found that loan officers sometimes backed into the
numbers. When filling out applications for stated in-
come loans, which did not require back-up documentation, they
would think, ‘What income do I need to put
down that the borrower earns in order to qualify for the loan?’
Whether the borrower earned that or not, the
loan officer would write that income on the mortgage
application. The loan officer may have said something
along the lines of, ‘Don’t worry about that. It's no big deal. Do
you want that house or don't you?'” Hunt elab-
orated, “How many nail technicians do you know who make
$10,000 a month? Think about the number of
manicures a technician would need to do to earn that amount,
and that's when your mind starts telling you
this doesn't make any sense. The loan applicant only has $50 in
the bank. How could they buy a half-million-
dollar home at 100 percent financing? Shouldn't somebody be
looking a little deeper?” 17 Hunt reported the
defects in regular reports, but colleagues did not welcome her
warnings.
“Instead of the manager of an underwriter who made a mistake
[like misstating a borrower's income] sitting
down with the underwriter, addressing the problem, and sending
the underwriter on probation or to addition-
al training, they fought us on why or how we found the
problems. It ended up being a war every day,” Hunt
recalled. “They didn't like me very much. I had been working
with the FHA since 1986, while many of these
people had been for two or three years. I could quote like
scripture where the [FHA] rules applied to each
loan. They would try to tell me a mortgage fit FHA guidelines,
and I could assure them that it didn't.” 18
Being disliked was not new to Hunt. There had been objections

from upper management when Bowen tried
to formally promote her to Connie's position. Hunt explained,
“They knew I was by the book. I offered solu-
tions for every instance that I could [to close a loan] but only
through staying within our policy's guidelines… I
wasn't as flexible as they needed me to be for their paychecks.”
19
The Culture within REL
In the years that followed Citigroup's restructuring, a
significant corporate emphasis was placed on growth
and market share, with all REL employees receiving quarterly
memos congratulating them on consecutive
quarters of growth in mortgage originations and highlighting
their rising rank in market share—from thirteenth
place in market share for real estate lending in 2001 to third
place in 2006. Corporate headquarters praised
employees' valiant efforts. 20
To continue on this trajectory and meet investors' high demand
for mortgage-backed securities at the time, Citi
had incentives in place. The discretionary salary and bonuses of
CitiMortgage employees up to its CEO de-
pended upon the percentage of loans approved. 21 “My bonus
was based on how many loans we processed.
My former direct supervisor [Connie] used to brag about how
she paid cash for her cars when she got her
SAGE
University
SAGE Business Cases
Page 7 of 17

Up About
bonus,” said Hunt. “My thought has always been that loan
officers should not be paid on commission because
it can lead people to do things that aren't ethical or moral to get
a paycheck.” 22
Bloomberg journalist Bob Ivry described the interaction
between Citi corporate headquarters and CitiMort-
gage headquarters: “Connecting the mother ship from the far-
flung outpost was a corporate ladder whose
every rung was populated with go-getters who lived to please
those above them… The only glimpses New
York had into what O'Fallon was up to were periodic reports on
the quality of the home loans CitiMortage was
processing… the reports conveyed the message to the top that
the mortgage factory was well greased and
purring. Performance was improving every day.” 23
Hunt believed that most employees of Citi were ethical. “Citi is
full of wonderful people, conscientious people
[too],” she said. 24 She fondly recalled times when her office
ran informal fundraisers during which employ-
ees contributed $20 to a local nonprofit for the privilege of
wearing blue jeans to work, resulting in donations
of nearly $25,000 per month. 25 But overall she felt there was a
culture on the surface of doing the right
thing—for example, offering Sarbanes-Oxley vii training and
management classes—but ultimately fostering a
diffusion of responsibility and a strong catering to the sales
department. “Anything that opposed sales [those

who bought loans from correspondent lenders] or getting new
business in the door was squashed a lot of
times. We were expected to play nice in the sandbox and if sales
wanted a new program, we needed to go
along with it, even if I thought it wasn't a good program to have
on our books,” explained Hunt. 26
The constant change in upper management also was a major
cultural issue. “Say you have a box. And once
every two to three months you take all of upper management,
throw them into the box, shake it up, and dump
it out. Wherever they land, that's what their specialty is now.
They didn't have experience in those areas. I
can't tell you how frustrating that was,” remembered Hunt. 27
She estimated that the position of second in
command under CitiMortgage's CEO changed fifteen times from
2004 to 2011.
2006–2007: Hunt's and Bowen's Problems Continue
During this period, Hunt and Bowen recalled the defect rate of
REL's mortgages hovering between 60 and
80 percent. The industry's rule of thumb was to keep the rate
below 5 percent. Starting in 2006, they worked
together to try to identify and fix the myriad problems
underlying the high defect rate: Citi's systems could
not effectively track important criteria. For instance, Citi's
computer system could not stop a loan officer from
moving forward with a loan application if he or she entered an
applicant who did not meet a loan program's
minimum credit score. The fact that this simple indicator could
not be flagged was one among many reasons
that Hunt and Bowen could not systematically prevent Citi from
buying loans from correspondent lenders that
did not meet Citi's requirements. “We had a very small,
understaffed QA group. Citi was buying 5,000 to 8,000

loans per month [from correspondent lenders], and we had four
people looking at what they could, [manually]
sending out notices to the lenders. But we had no method to
follow up to see if these lenders were fixing the
problems,” said Hunt. 28
At the time, there were numerous initiatives within REL to
become more efficient and drastically reduce the
number of employees. 29 Hunt and Bowen were frustrated with
the hiring freezes and refusals to authorize
overtime. They were fighting a spiraling problem with shrinking
resources.
Bowen recalled, “I would make presentations, capture people in
the hallways, warn my superiors. No one
could tell me that what I was finding wasn't true, but they
would argue that it was just technical exceptions
that I was finding. The real estate market was in a bubble phase,
and there really were no delinquencies yet,
so there was no hard evidence that the defects [we were] finding
would translate into losses. They were just
SAGE
University
SAGE Business Cases
Page 8 of 17
Up About

‘exceptions to policies.’ There was no empirical evidence. I was
hearing [these excuses] even from the chief
risk officer who presided over CitiMortgage. He'd say, ‘These
are prime mortgages. They just don't default.
We won't have losses on them.’” 30
When Hunt sent another increasingly grave summary of her
defect findings to Bowen in late 2007, he con-
cluded that Citigroup was at dangerous risk. If the defective
mortgages were to default, the affected GSEs
might require Citi to repurchase billions of dollars in defective
loans that it had represented and warranted.
Hearing in the press that on Sunday, November 4, 2007, Robert
Rubin would be named Citigroup's new chair-
man of the board, Bowen knew he needed to warn him. From his
home on Saturday, he sent an email to
Robert Rubin, copying Citi's chief auditor (who reported to the
board of directors), Citi's chief financial officer,
and Citi's senior risk officer in Manhattan. “The reason for this
urgent email concerns breakdowns of internal
controls and resulting significant but possibly unrecognized
financial losses existing within our organization,”
Bowen wrote, hoping to be invited to speak at the board meeting
on Sunday. (Read the full email in Exhibit
2.)
On Tuesday he received a call from one of Citigroup's top
general counsels, who said, “We got your email,
and we're taking this seriously. Don't call us. We'll call you.”
31 However, Bowen said, general counsel nev-
er called back despite the emails he sent in November and
December, offering to share more details. “They
didn't want to know the details,” Bowen concluded. “They
wanted to sign off on Sarbanes-Oxley at the end of
the year.” 32

An Unexpected Personal Crisis for Hunt
Hunt did not know Bowen had sent this email until months later
because the weekend after Bowen sent it, she
and her husband were involved in an automobile accident with
an elderly drunk driver. Hunt spent time out of
the office while she and her husband recovered from serious
injuries. They befriended a lawyer named Finley
Gibbs, who became a trusted advisor throughout the traumatic
experience. “You come out of an experience
like that with a commitment to making the most of the time you
have and making the world a better place,”
said Hunt. 33
With her husband on disability and a stack of medical bills,
Hunt returned to work at CitiMortgage. She was
promptly told that Richard Bowen had taken a medical leave
and that she would now report to Bowen's boss.
34 Saddened, Hunt knew that Bowen had been dealing with
recent illnesses in his immediate family, and she
decided not to contact him out of respect to allow him to deal
with those matters.
Soon thereafter Hunt was asked to meet with a group of Citi's
lawyers, who had flown in from New York. 35
She assumed their questions would pertain to collecting
information about litigation-related issues that Citi-
Mortgage was having with some of its lenders at the time.
However, after meeting with the attorneys and
ruminating on the questions they had asked, she began to
suspect they had something to do with Bowen. 36
When she and Bowen finally spoke by phone, “[s]he said, Dick,
I'm going to take very careful notes, and I'm
going to keep copies of documents at my desk. And I said,
‘Good for you’!” Bowen recalled with admiration.

37 From that point forward, Hunt began keeping a detailed
spreadsheet on her home computer, recording
every problematic encounter or email she had at work each day.
2008: Citi Reacts and Crisis Hits
SAGE
University
SAGE Business Cases
Page 9 of 17
Up About
In early 2008, Bowen was stripped of his underwriting
responsibilities, 38 and the number of people he man-
aged was reduced from 220 people to 2. 39 In April 2008, he
filed a complaint—in line with procedures under
the Sarbanes-Oxley Act—with the Occupational Safety and
Health Administration (OSHA), claiming that
Citigroup had retaliated against him for the email he had sent to
Robert Rubin. 40
That April, Citi modified Hunt's responsibilities as well. She
went from supervising 65 people to 1. “I was lit-
erally put in a corner [with the supervisor under me] and told I
was going to be ‘quality,’ but we were placed
as far away in the office as possible from the underwriters, who
couldn't really come talk to us. They didn't
change my title or my salary, but they changed everything else.”

41
In July 2008, Bowen testified before the U.S. Securities and
Exchange Commission (SEC), which had ap-
proached him with interest after reviewing his OSHA complaint.
Bowen presented over 1,000 pages of docu-
ments to the SEC to verify his experiences and was told the
commission would pursue his case, but he never
heard back. 42
“Looking back, I think that [the U.S. government] couldn't
pursue fraud charges and at the same time give Citi
a $45 billion bailout. The public wouldn't have accepted that,”
Bowen surmised. 43
Citi's Bailout during the U.S. Financial Crisis
In 2008, big changes were underway at Citi: the housing bubble
had burst and there were widespread defaults
on mortgages, causing the company to lose over $30 billion
during 2007–2008. 44 Vikram Pandit joined Cit-
igroup as its new CEO in December 2007, and Sanjiv Das
became CitiMortgage's new CEO during 2008.
Pandit embarked on a campaign to create a culture of what he
called “responsible finance” at Citi. “We're go-
ing to stand for the financial services company that practices
responsible finance—making sure we're trans-
parent, making sure we're honest, making sure we manage our
shareholders' money prudently,” he pledged
to clients and stakeholders in a video on Citi's blog. 45
As Citi was considered a SIFI (systemically important financial
institution), the U.S. government stepped in to
stabilize the bank during the financial crisis. Starting in October
2008, the U.S. Department of the Treasury
bought $45 billion in preferred stock to provide Citi with a

capital infusion. And the government went on to
guarantee $301 billion in toxic assets (many of which were
pools of defective loans) on Citi's balance sheets.
Combined with approximately $100 billion in emergency
overnight loans from the Federal Reserve, these
sums made Citigroup the bank that received the most bailout
dollars in the United States. 46
2009–2010: Hunt's Situation Worsens
By 2009, Hunt had been moved from her two-person team in the
corner to the quality control (QC) unit.
“They said they didn't have anything else for me to do, until a
leader from the quality control unit—who was
based out of CitiMortgage's Ann Arbor, Michigan, office—
reached out to me. I remained in O'Fallon but be-
came a supervisor in that unit,” 47 Hunt recalled. “Citi had lots
of silos. You had different groups all respon-
sible for doing the same things, but nobody knew what the
others were doing.” 48 In QC, Hunt and her team
reviewed not only mortgage files from the correspondent
lenders but also mortgages that Citi had directly is-
sued to home buyers and had approved for government
insurance.
While working for QC, Hunt continued to witness fraud. “This
wasn't my first rodeo,” she said. She had seen
SAGE
University
SAGE Business Cases
Page 10 of 17

Up About
fraud in three or four of the other major banks in which she had
worked throughout her career in the mortgage
industry. “You know when they say people tend to have a fight
or flight response? Ordinarily, I took flight. I'd
leave a company each time I saw unethical behavior. But this
time I was trapped. I couldn't leave. Nobody
was hiring, especially not at the VP level, during the economic
crisis.” 49
In November 2009—a year after Citi received its bailout—Hunt
discovered 1,000 loans that had been flagged
by her team for not just defects but fraud and had been
escalated to CitiMortgage's fraud prevention and in-
vestigation group. “The thousand loans I found were Fannie,
Freddie, and FHA loans that should have been
clean as a whistle, but they weren't,” explained Hunt. 50 Citi
had made a commitment to the FHA that it
would alert the administration within one month if it found
anything suspicious in the loans that the FHA had
guaranteed. The fraud prevention and investigation group had
not taken action on some of the loans in this
group for over two years. 51 Previously, when Hunt's team had
escalated loans to the fraud prevention and
investigation group and it had responded, approximately 80 to
90 percent were confirmed as fraud. 52 “I kept
squawking [about these] outstanding fraud referrals, and then I
realized that they weren't ever going to go
back and get caught up [on the backlog]. They were too far
behind, and my boss told me they were concen-
trating on current events. They were just going to start from

scratch. I thought, ‘You’re kidding me.’ There are
a thousand loans I know of with suspected fraud that you won't
be responding to?” Hunt recalled. 53
Soon thereafter, CitiMortgage created a new group in 2009
called the quality rebuttal committee. Its task
was to review and potentially refute the defects in the
mortgages identified by QC. For example, a document
called a HUD-1—a form that itemizes all charges imposed on
the buyer and the seller in a real estate trans-
action—was required to be signed and submitted for every loan
that was approved for FHA insurance. Gov-
ernment guidelines stated that a loan should be rejected if
missing the HUD-1. The quality rebuttal committee
would overrule Hunt, claiming that the absence of a signed
HUD-1 did not necessarily indicate that a loan was
bad and approving the file for FHA insurance. Hunt felt
disrespected and ignored as she watched members
of the quality rebuttal committee receive employee-of-the-
month awards in January 2010. 54
Bowen Leaves Citi and Testifies to Congress
In January 2009, Bowen—who had continued to be employed by
Citi but had been placed on paid adminis-
trative leave from the moment he had been stripped of his
underwriting responsibilities—left the company. “I
had to move on with my life. [All this] had taken a real toll on
my family and my health, and I had to end it,”
he said. 55 He signed a separation agreement with Citigroup,
which settled his OSHA complaint and granted
him a severance package of less than $1 million. 56
In May 2009, Congress formed the Financial Crisis Inquiry
Commission (FCIC), whose mandate was to
investigate the causes of the financial crisis. Freed from the

provisions of his confidentiality agreement with
Citigroup for the government investigation, Bowen felt hopeful
when the committee invited him for an inter-
view on February 27, 2010. His lawyers by his side, Bowen
spoke with two FCIC investigators for four hours,
the recording and transcript of which were sealed and sent to
the National Archives (available for public re-
view starting in 2016). 57 He was then asked to testify publicly
in front of the commission on April 7, 2010,
though in the final days leading up to his public testimony, the
deputy general counsel of the commission—un-
der pressure from Citigroup's lawyers—made Bowen remove
pieces of his 28-page testimony. Bowen was
asked to delete any mention of his concern that Citi had
materially misrepresented its certifications of internal
controls, delete the names of individuals within Citi, and delete
information about his essential demotion after
having sent the email to Robert Rubin. 58
SAGE
University
SAGE Business Cases
Page 11 of 17
Up About
Phil Angelides—the former state treasurer of California who led
the FCIC—told the New York Times that
“[Wall Street banks] and their phalanx of attorneys were putting

enormous pressure [on the commission] every
day of every week with every witness [in an effort] to discredit
people who were testifying against their inter-
ests.” 59 Bowen's attorney also told the media that he felt
Bowen had been censored. 60
The output of the commission was a 500-page report 61 that was
criticized for not drawing concrete conclu-
sions. “It basically said that the financial crisis was caused by a
combination of so many things… that it was
nobody's individual fault,” recalled Bowen. 62 When reflecting
on his journey, the word that came to mind was
devastating. “It truly was,” he said. “From my standpoint, the
corruption extends to the highest levels of gov-
ernment. 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, [is] just completely
violated.” 63
Bowen later embarked on a second career as an accounting
professor at the University of Texas at Dallas,
where he shared his experiences with his students and continued
to be a public speaker for companies and
associations working to build more accountable corporate
cultures. “By God, I've got to leave this country bet-
ter off than the way I found it,” he said. 64
What is the Dodd-Frank Act?
The Dodd-Frank Wall Street Reform and Consumer Protection
Act was a piece of financial reform leg-
islation that was signed into federal law under the
administration of U.S. President Barack Obama on
July 21, 2010. Its provisions intended to decrease risks in the
U.S. financial system.

Section 922 of Dodd-Frank required the SEC to establish a new
Whistleblower Program that paid
awards (when certain limitations and conditions were met) to
whistle-blowers who voluntarily provided
the SEC with original information about violations of securities
laws. For more information, visit the
SEC Office of the Whistleblower, www.sec.gov/whistleblower .
Hunt Begins to Study the Dodd-Frank Act
In November 2010, a colleague forwarded Hunt an email from a
senior executive at CitiMortgage. 65 The
executive had emailed all of his subordinates, ordering them to
meet the bank's goal of a maximum 5 percent
defect rate on home loans. That month Hunt's QC team had
found 10 loans with severe defects from a pool
of 138 loans, which represented a 7.25 percent defect rate. The
executive told his subordinates to use “brute
force” if necessary on Hunt's team to drive down the rate. 66
Hunt soon saw reports that showed decreasing
defect rates, but she knew that this wasn't the result of fewer
defective mortgages. Hunt could not understand
why Citigroup's leaders did not appear to want to address the
root problems. “You can't look at these reports
and think everything is rosy,” she thought. “How can you
effectively lead thousands of employees here in
O'Fallon from a high rise in New York City? [CitiMortgage
CEO] Das came into town about once a year.” 67
It was at this point that Hunt began to study the Dodd-Frank Act
viii at home, hoping to educate herself on
SAGE
University

SAGE Business Cases
Page 12 of 17
Up About
http://www.sec.gov/whistleblower
how she might report the violations she was witnessing.
In the months that followed, Hunt reported Citi's fraud
anonymously on HUD's website. When there was no
response, she did the same on the FBI's website. “I kept trying
and thinking—how could I be anonymous with
this? I created a new email address. I just wanted them to
investigate the claims. I thought the FBI would
certainly be interested in fraud, but I never heard back. It was
so frustrating.” 68
At work she would peer at the lyrics of the Rascal Flatts song
‘Stand’ that she had pinned to her office wall:
Decide you've had enough.
You get mad. You get strong.
Wipe your hands. Shake it off.
Then you stand.
The Last Straw
The night of March 22, 2011, after Citi executive Jeffery

Polkinghorne had threatened her in the conference
room—insisting that she change reports—Hunt lay awake in
bed. For almost a year she had applied to hun-
dreds of other jobs across the country to no avail. She had sold
her horses, even sold her truck. She was
ready to leave Citi and move in an instant, but there was
nowhere to go.
The time had finally come. She had to take a stand. But who
should she go to, and what should she say?
(See Figure 2 for a timeline summarizing the events leading up
to March 2011.)
Figure 2: Timeline of Major Events in the Case
Source: Created by case author.
SAGE
University
SAGE Business Cases
Page 13 of 17
Up About
Notes
i.Mortgage: Residential mortgages are loans made to individuals
for large real estate purchases for which

they cannot pay the full value up front. Through a
predetermined number of payments, the borrower (the
home buyer) repays the loan plus interest to the lender (the
bank). One key element of a mortgage is the fact
that the home buyer must pledge his or her home to the bank as
collateral in case the home buyer defaults
on paying the mortgage. If the home buyer does not make his or
her mortgage payments, the bank can evict
the home's tenants, sell the home, and use the income from the
sale to repay the mortgage debt.
ii.Prime: Prime refers to the credit quality of the mortgage
borrower, as determined by various credit rating
bureaus (e.g., FICO, Equifax, and Experian). The highest-
quality borrowers (or individuals with the lowest risk
of default) are referred to as prime.
iii.Subprime: Subprime borrowers are those with tarnished or
limited credit history and poor-quality collateral.
They have lower credit scores and are more likely to default
than prime borrowers.
iv.Default: When a home buyer defaults on a mortgage, they
have failed to pay the lending bank their monthly
mortgage payment.
v. First name only provided, as this was how interviewees
preferred to refer to Sherry Hunt's original direct
supervisor.
vi.Government insurance: When a government agency such as
the FHA or the U.S. Department of Veteran
Affairs insured (or “guaranteed”) a loan, it promised to pay the
lending bank a percentage of the losses it
would incur if the borrower defaulted on his or her loan. By
insuring loans, government agencies could enable

certain groups of people (e.g., first-time home buyers or
veterans) to more easily obtain home loans.
vii.The Sarbanes-Oxley Act of 2002 was a federal law in the
United States that set new standards for all
U.S. public companies and public accounting firms in order to
further protect investors and enhance corpo-
rate responsibility. Section 302 of Sarbanes-Oxley, called
“Disclosure Controls,” required that a company's
principal officers (e.g., CEO and CFO) certify and approve the
integrity of their company's financial reports
on a quarterly basis. Officers' signatures verified that they had
reviewed a report, and—to the best of their
knowledge—the report did not contain any untrue statement of
material fact or omit to state a material fact
necessary in order to make the statements not misleading.
viii. It is important to note that when the Act was passed on
July 21, 2010, the provisions were slightly different
than they were when the case was published in 2014. At the
time this case was written, the most up-to-
date terms of Dodd-Frank had been released and took effect on
August 12, 2011. Among this version's most
controversial proposed rules was the absence of any requirement
that a whistle-blower report initial findings
through a company's internal compliance program, prior to
approaching the SEC. See D. Michael Crites and
Christian Gonzalez, Dinsmore & Shohl LLP, “Dodd-Frank:
Final Whistleblower Provisions Take Effect August
12th: Is Your Company Ready?” July 28, 2011,
http://www.dinsmore.com/final_whistleblower_provisions.
References
1. Bob Ivry, The Seven Sins of Wall Street: Big Banks, Their
Washington Lackeys, and the Next Financial

Crisis (New York: PublicAffairs, 2014).
2. Sherry Hunt, in interview with the authors, April 14, 2014.
3. Ivry, The Seven Sins of Wall Street.
SAGE
University
SAGE Business Cases
Page 14 of 17
Up About
http://origin-sk.sagepub.com/cases/whistle-blower-sherry-hunt-
spoke-up-citibanks-mortgage-fraud##i4001
http://www.dinsmore.com/final_whistleblower_provisions

4. Testimony of Richard M. Bowen, III, Hearing on Subprime
Lending and Securitization and Government
Sponsored Enterprises, Presented to the Financial Crisis Inquiry
Commission, April 7, 2010, http://fcic-stat-
ic.law.stanford.edu/cdn_media/fcic-docs/2010-04-
07%20Richard%20Bowen%20Written%20Testimony.pdf.
5. Ibid.
8. Ibid.
9. Richard Bowen, in interview with the authors, April 21,
2014.
11. The facts in this paragraph came from Testimony of Richard
M. Bowen, III, Hearing on Subprime Lending.
2014.
14. Bob Ivry, “Woman Who Couldn't Be Intimidated by

Citigroup Wins $31 Million,” Bloomberg, May 30, 2012.
17. Ibid.
18. Ibid.
19. Ibid.
Lending.
21. Ivry, “Woman Who Couldn't Be Intimidated by Citigroup
Wins $31 Million.”
25. Ibid.
27. Ibid.
28. Ibid.
Lending.

SAGE
University
SAGE Business Cases
Page 15 of 17
Up About
http://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2010-04-
07%20Richard%20Bowen%20Written%20Testimony.pdf
http://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2010-04-
07%20Richard%20Bowen%20Written%20Testimony.pdf

2014.

31. Ibid.
32. Ibid.
2014.
38. Ibid.
39.The Financial Crisis Inquiry Report: Final Report of the
National Commission on the Causes of the Fi-
nancial and Economic Crisis in the United States, Official
Government Edition, January 2011, http://fcic-stat-
ic.law.stanford.edu/cdn_media/fcicreports/fcic_final_report_full
.pdf.
40. William D. Cohan, “Was This Whistle-Blower Muzzled?”
New York Times, September 21, 2013.
41. Sherry Hunt, in interview with the authors, May 9, 2014.
42. Cohan, “Was This Whistle-Blower Muzzled?”
2014.

45. “The Cornerstone of a New Citi: Responsible Finance,” Citi
Blog, February 1, 2010, http://blog.cit-
igroup.com/2010/02/our-ceo-onthe-new-citi-and-creating-a-
culture-of-responsible-finance.shtml. See also
Ivry, “Woman Who Couldn't Be Intimidated by Citigroup Wins
$31 Million.”
53. Ibid.
SAGE
University
SAGE Business Cases
Page 16 of 17
Up About

http://fcic-
static.law.stanford.edu/cdn_media/fcicreports/fcic_final_report_
full.pdf
http://fcic-
static.law.stanford.edu/cdn_media/fcicreports/fcic_final_report_
full.pdf

http://blog.citigroup.com/2010/02/our-ceo-onthe-new-citi-and-
creating-a-culture-of-responsible-finance.shtml
http://blog.citigroup.com/2010/02/our-ceo-onthe-new-citi-and-
creating-a-culture-of-responsible-finance.shtml
2014.
57. Ibid.
58. Ibid.

59. Ibid.
60. Ibid.
61.The Financial Crisis Inquiry Report.
2014.
64. Ibid.
68. Ibid.
http://dx.doi.org/10.4135/9781473972254
SAGE
University
SAGE Business Cases
Page 17 of 17
Up About

http://dx.doi.org/10.4135/9781473972254Through the Eyes of a
Whistle-Blower: How Sherry Hunt Spoke Up About Citibank's
Mortgage FraudCaseAbstract
Case Analysis Outline
I. Situation (need to know in order to ask the right questions)
II. Questions (not included in written response…but ask

yourself these questions as you draft your essay)
1. What’s the problem?
2. What are the decision options?
3. Who or what is being evaluated?
a. What’s at stake?
b. What’s the most important criteria for this sort of evaluation?
III. Hypothesis (not included in written response…but ask
yourself these questions as you draft your essay)
1. Tentative explanation that accounts for the set of
facts/situation
2. Can be tested by further investigation
3. Which do you have most confidence in?
4. Your Arguments
5. Expresses WHY
IV. Position (pick a side)
1. Expresses a conclusion
2. Answers WHAT
V. Proof & Action (prove your point & provide steps to
accomplish)
1. Prove something, not look for something to prove
a. Supporting evidence for your position
b. Persuade
2. Action Plan
a. HOW would you implement the decision you’re
recommending?
i. Short-term
ii. Long-term
b. What are the risks?
i. Discuss main risk & measures to manage
VI. Alternatives (what other views are out there?)
1. Every position has a weakness
a. What’s the strongest alternative to your position?
i. Problem
1. Can you define the problem differently?
ii. Decision
1. What’s the biggest downside to your recommended decision?

iii. Evaluation
1. What’s another way to evaluate your overall assessment?
b. What’s the weakest alternative to your position?
i. Brief statement (1-2 lines)
VII. Conclusion (restate your position and plan)
Adapted from William Ellet, The Case Study Handbook: How
to Read, Discuss, and Write Persuasively About Cases (Harvard
Business School Press)

Through the Eyes of a Whistle-Blower How Sherry Hunt Spoke .docx

Recommended

Recommended

More Related Content

More from juliennehar

More from juliennehar (20)

Recently uploaded

Recently uploaded (20)

Through the Eyes of a Whistle-Blower How Sherry Hunt Spoke .docx