Harkness contends that she raised red flags at Fieldstone about Sonnenfeld's behavior. She said, according to her complaint, that she advised him of inappropriate interaction with investors and analysts that could expose him to liability under insider-trading laws. She also said she told him that a proposed award program for brokers could violate a federal consumer protection law.
Then in late 2006, she told the company's outside auditors that she was unsure whether top executives were committed to ethics and legality, in part because she and other members of the legal department were routinely excluded from meetings.
Harkness alleges that she was fired a few weeks later for speaking out. About a week after that, she submitted a report to directors outlining her concerns.
She declined to comment for this article. The Department of Labor, which administers the whistleblower program, dismissed the complaint regarding her termination. It did not weigh in on company practices. The agency's decision was appealed to an administrative law judge, her lawyer Daniel F. Goldstein said.
Fieldstone agreed in February to be bought by Credit-Based Asset Servicing and Securitization LLC. Officials with the New York firm known as C-Bass couldn't be reached to comment.
Then in August, as C-Bass itself received margin calls, Fieldstone was no longer able to access the credit markets and couldn't originate any mortgages. The company laid off most of its workers, which once numbered more than 1,000, and is now operating with a skeleton crew of 25 people.
Morgan Stanley and Lehman Brothers sued Fieldstone to force the company to repurchase bad loans. According to the lawsuits, borrowers failed to make a payment within the first six months and incorrect information on appraisals and borrower qualifications was submitted.
Nonetheless, Fieldstone's bankruptcy lawyer, Joel I. Sher, said the company hasn't ruled out getting back to business once the bankruptcy is resolved. Many industry analysts predict a comeback for subprime mortgages, though with far more restrictions on borrowers as well as lenders.
laura.smitherman@baltsun.com
