Richard M. Bowen III, a Citigroup senior vice president and chief underwriter for the Consumer Lending Group, began warning the bank’s board in June 2006 that its mortgage-quality controls were failing. His unit bought and sold roughly $90 billion in residential mortgages annually; Bowen reported that about 60% of the mortgages were defective when he first raised the alarm, with the proportion exceeding 80% in 2007. He also said many loans were fraudulent, exposing the bank to potentially massive losses.
On November 3, 2007, Bowen emailed Chairman Robert Rubin, Chief Financial Officer Gary Crittenden, the head auditor, and the risk-management officer, asserting that internal controls had broken down and requesting an external investigation. The resulting review reportedly confirmed that the Consumer Lending Group’s controls had failed since 2005. Bowen argued that withholding the information from shareholders violated the Sarbanes-Oxley Act, even as CEO Charles Prince certified Citigroup’s compliance. The bank removed most of Bowen’s responsibilities and told him he need not remain physically present. He later testified before the Financial Crisis Inquiry Commission in April 2010 about Citigroup’s role in the subprime mortgage crisis.
