Prudential fraud case grows, whistleblower attorneys speak out

For three months, Wells Fargo has reeled from scandal, hit by the revelation the bank's employees created thousands of unauthorized accounts for unknowing customers.

It now appears the scheme may run deeper, and impact some customers who purchased life insurance policies through those same employees.

A fresh lawsuit alleges that bank employees signed up customers up for low-cost life insurance through Prudential Financial Inc., which they may not have asked for. The wrongful-termination suit was filed by three former managers in Prudential's corporate-investigation who say they were fired for trying to bring attention internally to Wells Fargo's conduct. Prudential claims the employees were terminated for nonretaliatory reasons.

This latest legal action also has spurred an investigation by insurance regulators in California and New Jersey. California Department of Insurance Commissioner Dave Jones has asked investigators to dig into all aspects of these allegations, including possible violations of California laws requiring persons transacting insurance to have an insurance license issued by the department.

"Investigators with the California Department of Insurance will investigate new allegations of fraud and misconduct made by former Prudential employees regarding Wells Fargo and its employees," said Commissioner Jones. "Former Prudential employees who filed a whistleblower lawsuit allege that Wells Fargo signed up consumers for Prudential insurance policies without consumer permission much as Wells Fargo admitted its employees illegally signed up consumers for bank products without permission. We will also examine Prudential Insurance company's practices in this regard."

Prudential challenges whistleblowers

More than two decades ago, New Jersey lawyer Nancy Erika Smith represented a Prudential executive named Mark Jorgensen, who blew the whistle on the overvaluation of properties in real estate funds that were sold to institutional investors. Smith and her husband, Neil Mullin, run the whistleblower firm Smith Mullin.

After six months of fighting the accusations, in 1994, and after discrediting and firing Jorgensen, Prudential admitted the whistleblower was right all along. Prudential's chairman and CEO would praise Jorgensen's "courage and conviction" and offer to reinstate him. Jorgensen declined the offer and settled his retaliation case against Prudential for an undisclosed sum.

On Tuesday, Smith and Mullin, a husband-and-wife legal team, spoke out about their latest whistleblower matter regarding Prudential: The firm now is representing, with co-counsel, Wells Fargo customers who claim they were enrolled without consent in Prudential's "MyTerm" insurance program.

What follows are excerpts from that interview.

More than 20 years ago, you represented a whistleblower who alleged retaliation after flagging misconduct at Prudential. How did you react when you learned about the whistleblowers who brought issues with Wells Fargo's sales practices to Prudential's attention?

Smith (seen here at right): The first thing I said when I heard about the whistleblowers' case and their being fired is Prudential has no institutional memory. It's like Jorgensen's case in that Jorgensen was blowing the whistle on serious fraud on the pubic. And like the whistleblowers today, he naively thought 'Oh my god I better tell people.' He thought one or two people made a mistake. Like the current whistleblowers, he was met with incredible hostility. He didn't get fired right away. He filed a lawsuit, and he was at work, and literally nobody would sit with him in the cafeteria.

Thinking back on your experience with Jorgensen, what did you do to get him through that road to vindication? And what tips do you have for whistleblowers in a similar situation?

Smith: We're a small law firm, and Neil and I are husband and wife. We became very, very close with the Jorgensens. We had dinner at their house. A lot of my clients don't have my cellphone to call me 24/7. Mark Jorgensen did. People who are in extremely difficult settings become more than just our clients. I hear from Mark Jorgensen all the time. I see his Christmas pictures. I see his children and grandchildren. I know what they're doing. We become almost like family. … You need to be more than just their lawyers to understand what they're going through.

In some of my cases, I have had a current whistleblower talk to a former whistleblower who got through it. It's almost like a little individual support group, where you sort of get a pep talk. Because you lose so much when you're thrown out of your workplace in this kind of setting where memos go around, saying you can't talk to so and so. … You have to establish a support network.

What were the hardest parts about the Jorgensen case?

Smith: There were two days that were very, very, very difficult. One was the day that my client called me and said he was sitting alone in the cafeteria. And people who'd been his friends for many many years wouldn't look at him or talk to him. He just couldn't believe it. I talked to him on the phone while he ate his lunch alone.

I think the other really rough day was the day they fired him. That was a very interesting day. I was in court on another matter, and the judge in the Prudential case insisted that I come right away to his courtroom. And the Prudential lawyers were there, and they were waving around a Bloomberg story saying we'd talked to the press. The judge started questioning me.

I said, 'Wait a minute, what is this? Is this an order to show cause, is this a motion for temporary restraint? Is there a gag order in this case? Is there a motion for a gag order? Is this my deposition? What is this process?' The judge was basically saying that I was 'obtuse' if I didn't understand. And I just held my own and said I'm not answering questions.

The judge said from the bench that, in his opinion, Prudential had a right to fire Mr. Jorgensen for talking to the press, and that's what they did that day. And we worked overnight, around the clock to file another case claiming that now our client was retaliated against for asserting his right under the First Amendment.

One aspect of the whistleblower process that can be especially daunting is the wait — often with strain on family and finances. Your case with Jorgensen was settled in less than a year. How were you able to resolve the case in a relatively short time frame?

Smith: With Jorgensen, we were very lucky because press took an interest in the case. I remember Bloomberg was just starting, and they took a big interest in the case. Kurt Eichenwald at The New York Times was on it. And we had a U.S. attorney breathing down their throats. That is why the case settled. I don't think we were even in the case a year. That's a very short resolution window.

Has Prudential's approach to whistleblowers changed since the Jorgensen case?

Smith: For many years, actually until recently, we got the impression that the Jorgensen case had affected Prudential's decision-making with regard to how to treat whistleblowers and victims of discrimination. It seemed like a message had gotten across that maybe attacking the whistleblower in a very public way, or really no-holes-barred litigation for a company that spends a fortune on PR, didn't make sense.

Mullin: There were times when we felt we were working hand in hand with Prudential's legal department to solve a problem and prevent wrongdoing. Now it appears that they've lost that institutional memory and they've just behaved in an awful way with these three whistleblowers, firing them all simultaneously on the eve of Thanksgiving based on some shabby pretext. So we don't get that, we don't get what happened.

What challenges do you see on the horizon for whistleblowers?

Smith: As long as we have a culture that doesn't put corporate wrongdoers in jail … you go to jail if you're an African-American in a city with a joint. But corporate wrongdoers in America don't go to jail. As long as we live in that world, this is going to go on. Our environment is in danger, our finances are in danger, every consumer is in danger of being defrauded. Wells Fargo, it's unbelievable how long it went on, that it continued after it came to light. It still continued through 2016 until yesterday. They shut it down yesterday. They didn't stop. That's because there's very little accountability for corporate wrongdoing.

What do you think a Trump administration will mean for the future of whistleblower protections?

Smith: Unfortunately, it looks like we're going to enter a period where corporations and our government are actually one in the same. So, the idea that we're going to have more protections for whistleblowers, which means more protections for the public, is not going to come to fruition. We're going to go in the other direction and have more of a corporate conversation.

Mullin: On the other hand, we have blue states, New Jersey being one of them, that have wonderful whistleblower laws. Not all blue states, but California does, and New Jersey does. Interestingly, New York has an extremely weak whistleblower law — very, very weak.

But I think the action in whistleblowers will be under the state laws going forward for the next four years. And there will be major setbacks, not only setbacks in terms of enforcement through agencies of whistleblower rights. I would expect the Supreme Court of the United States, once it has the Trump member on it, will start to enter decisional law that undermines federal whistleblower rights. I think that's a danger. … The landscape's about to change for whistleblowers.

Steven A. Meyerowitz, Esq., Director, FC&S Legal, also contributed to this report.

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