The Financial Crisis Inquiry Commission was always destined to fail.

It had an enormous task: Tell us what—and who—caused the biggest financial crisis since the Great Depression. For that, it was stacked with bipartisan political appointees (rather than say, seasoned prosecutors), assigned a hard deadline of a little more than a year, and handed an appalling $10 million budget. To put that in context, Fannie Mae spent $60 million on an in-house investigation of its bad accounting a few years earlier. The Valukas report, which examined Lehman Brothers alone, cost $38 million.

As Bloomberg’s Jonathan Weil wrote early on in the FCIC’s tenure: “Wall Street Fix Is In at Bank-Crisis Coroner.”

Little did he know how prescient that headline really was.

Richard Bowen was chief underwriter in consumer loans at Citigroup who in 2006 began raising serious questions with higher executives about fraud at the bank, which was bundling bad mortgage loans into mortgage-backed securities and collateralized debt obligations. Sixty percent of the loans Bowen surveyed were defective, meaning they didn’t meet Citigroup’s own standards. By 2008, 80 percent of Citi’s bundled mortgages were bad.

An executive above him, on the Wall Street side of the bank, was overturning Bowen’s underwriters’ decisions to reject loans—all so the bank could create more toxic CDOs to sell off to unsuspecting investors.

Bowen blew the whistle, even roping in Clinton’s financial crisis architect Robert Rubin, who deregulated the financial system, enabling the creation of Citi, and then left Treasury for the bank, where he would earn some $13 million a year to offer “advice.”

Bowen was demoted and run out of Citigroup for his efforts.

Seems like a guy you’d want to talk to if you were investigating fraud and the financial crisis, no?

Fortunately, the FCIC did talk to Bowen (unlike the Justice Department, which called him once after the commission’s report and never called back, and the SEC, which talked to him in 2008, never followed up, and won’t release the documents he gave them). Unfortunately, Bowen says the FCIC didn’t like what it heard and forced him to significantly water down his testimony.

William D. Cohan has the big scoop here in a column in The New York Times yesterday.

On March 30, one of Mr. Bowen’s attorneys, Steve Kardell, a partner at the Dallas law firm Clouse Dunn, told Mr. Bowen, in an e-mail, that the F.C.I.C.’s Mr. Bondi suggested “some substantial changes” to his testimony and “thinks that the way it’s written now, Citi will declare war on both you and the F.C.I.C., and it will primarily consist of an effort to discredit you.” While Mr. Kardell noted that the F.C.I.C. investigators said they didn’t want to influence his testimony, he said that Mr. Bondi suggested trimming it by 10 pages. Peeved, Mr. Bowen instructed him to find out what changes the F.C.I.C. staff wanted to make. The next day, Mr. Kardell e-mailed Mr. Bowen, “I get the impression that the revisions are non-negotiable.”

Mr. Bowen says the F.C.I.C. wanted him to delete his concern that Citi may have materially misrepresented its certifications of internal controls, which require corporate officers to certify the accuracy of their financial statements under Sarbanes-Oxley.

Remove the names of people at Citi, he says he was told. Take out his post-Rubin denouement, his conversations with the bank’s internal lawyers and the fact that Citigroup’s outside attorneys at Paul, Weiss, Rifkind, Wharton & Garrison LLP were conducting an investigation of his charges.

Bowen and his attorney tell Cohan that the sudden shift happened because of intense pressure on the FCIC from Citigroup and its outside law firm, Paul, Weiss, Rifkind, Wharton & Garrison LLP. Bowen diluted his testimony as requested in part because he thought he would be able to speak about it when called before the live hearing:

But that morning, he had breakfast with Mr. Kardell, who told him that Mr. Bondi had said that he was not to respond to the commissioners’ questions about his departure from Citigroup. If the commissioners asked him, for instance, what happened after he e-mailed Mr. Rubin, he was to be silent, and claim “employment issues” as justification. When one commissioner, Peter J. Wallison, asked what had happened, Mr. Angelides cut him off…

Mr. Angelides told me that he had no knowledge of Mr. Bowen’s being censored, but that he was aware that the commission’s staff would generally work with witnesses to focus their testimony “on the most salient facts.” The final report, he said, gave prominence to Mr. Bowen’s most substantial charges, including the e-mail to Mr. Rubin. But, he conceded, the 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 interests.

If this is true—and I have no reason to doubt Bowen—it’s a scandal. Who else got pressured to water down their testimony? What else did the FCIC short-arm or look away from?

What does it say about us that we need a Financial Crisis Inquiry Commission Commission?


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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.