Carol L. Gillam

A whistleblower lawsuit Gillam filed in San Diego federal court for a former auditor at Bank of Internet USA — accusing the bank of falsifying financial records and other violations of the Sarbanes-Oxley and Dodd-Frank acts — drew a strong counterpunch, muddying the litigation as the bank sought to put Gillam on the defensive. Erhart v. BOFI Holding Inc., 15-cv-2287 (S.D. Cal., filed Oct. 13, 2015)

"They countersued him," Gillam said of the bank's claims against client Charles M. Erhart, the former auditor. "In this case, the bank's CEO has made it clear he's going to try to bury the whistleblower. We're having to parry the incoming blows." One likely reason for the bank's wrath: Erhart's disclosures in the complaint Gillam drafted caused the bank's stock price to plummet 30.2 percent the day the complaint was filed, resulting in hundreds of millions of dollars in lost market capitalization.

Gillam said the chief argument of the bank's countersuit is that Erhart disclosed confidential financial information by filing his original complaint. "There is such a thing as the litigation privilege," Gillam said, rebutting that claim. "You can say anything in a pleading."

The bank was founded in 1999 and is a leader in providing financial services primarily via the internet. It has assets of more than $5.8 billion, Gillam's complaint states. Erhart claims he was harassed and fired after he disclosed allegedly illegal activities to bank management and federal regulators. Two of the claims are for retaliation. Gillam said the suit was filed after Erhart waited futilely for six months for federal regulatory agencies such as the Securities and Exchange Commission to act.

"The bank regulators are so backed up with complaints they cannot begin and end an investigation within 180 days" as statutes require, Gillam said. "They encourage lawyers like us to kick out cases and take them to court. We have gotten a lot of people's attention, including the public and the shareholders who have filed derivative suits."

Gillam said the logjam at regulatory agencies is beginning to clear. "It took quite a while for the government to ramp up" after Congress passed financial institution reform legislation, she said. "Now, they are starting to make significant awards to whistleblowers and to extract significant fines from wrongdoers. That's what we hope for here."

She added that the public interest aspect of whistleblower litigation has long attracted her. "You don't file and expect they'll write you a check by return mail," she said. "We are looking to vindicate the rights of real people. And the idea of too big to fail still frustrates me."

— John Roemer