Bank Will Get Key Info From Ex-Auditor

     SAN DIEGO (CN) — A federal judge ordered a former bank employee to turn over documents for a lawsuit that claims he cost BofI Federal Bank’s “hundreds of millions of dollars in lost market capitalization” by releasing confidential information in a lawsuit and to The New York Times.
     BofI, or Bank of Internet USA, an online banker, calls itself one of the fastest-growing banks in the country on its home Internet page. Its stock trades on the NASDAQ.
     It hired Charles Matthew Erhart as an entry level internal auditor at its San Diego headquarters in September 2013.
     On March 5, 2015, “BofI management learned that Erhart failed to complete at least nine internal audits assigned to him and that he had conducted his own ‘rogue’ and unapproved investigations,” U.S. District Judge Nita Stormes wrote in her April order on joint motion for discovery and granting the bank’s motion to compel.
     The very next day Erhart requested, and the bank granted, unpaid leave for family medical leave. Erhart sued the bank in October, claiming it fired him for blowing the whistle on the bank’s shoddy practices.
     His attorney Carol Gillam told The New York Times at the time: “As a former federal prosecutor and long time employment lawyer, I find the bank’s conduct as alleged here to be among the most egregious I have seen from a publicly traded company.”
     The Times reported in its Oct. 13, 2015 story that the bank “has become one of the country’s top-performing banks by churning out high-cost mortgages to wealthy individuals with complex finances,” but Erhart accused it of “cutting corners as it grew at a rapid pace.”
     Bank CEO Gregory Garrabrants told the Times the lawsuit was factually inaccurate, that federal regulators reviewed all of Erhart’s allegations and “found them to be wholly without merit.”
     The bank then sued Erhart, alleging computer fraud and wrongful dissemination of “confidential, privileged and proprietary information.”
     The bank says it learned on Oct. 13, the day Erhart sued it and the Times published its story, “that Erhart publicly disclosed some of the confidential information he obtained from BofI both to the New York Times and in the complaint he filed. On that same day, BofI’s stock price plummeted 30.2 percent. On October 19, 2015, BofI filed this action, contending that Erhart’s disclosures caused BofI’s stock price to plummet, resulting in hundreds of millions of dollars in lost market capitalization.” (Citations omitted.)
     A November 2015 temporary restraining order against Erhart and his attorneys prohibits Erhart from disclosing, copying, destroying, deleting or altering any of the bank’s confidential information. It also ordered Erhart to return any confidential information he possessed about the bank.
     In a Dec. 6, 2015 deposition, Erhart testified that he did not share confidential information with anyone other than his counsel and federal law enforcement authorities, according to Judge Stormes’ case summary.
     “He further testified that he sent information to his mother for safekeeping before he retained counsel because he feared the bank would destroy the information, and that his mother never looked at it,” Stormes wrote.
     The bank believes Erhart’s attorney was complicit in giving information to the Times and disclosed confidential regulatory information in the whistleblower complaint. It subpoenaed Gillam to produce her nonprivileged communications with the media and other third parties.
     The subpoena specifically requested communications between Gillam and Times reporter Peter Eavis, Seeking Alpha Inc., an investment blog, and those who write for the publication and others who sought information on the bank, such as short sellers, investors, law firms and investigators.
     The bank said the subpoena requests are relevant because revealing the people with whom Gillam communicated will “identify the full scope of Erhart’s breaches of confidentiality,” all of which is relevant to prove breach of confidentiality and claims for damages.
     The bank also claims that Gillam acknowledged she communicated with The New York Times before filing the initial whistleblower complaint.
     Gillam noted she is not a defendant in the bank’s lawsuit though an essential element of the bank’s complaint is that she filed the lawsuit that caused its stock to plummet. She argued that if she is compelled to respond to the subpoena, the bank will seek her testimony, effectively turning her into a witness and intruding on the attorney-client privilege.
     But Stormes found the documents sought are relevant, in fact, that they are “the heart of most, if not all, the claims asserted.”
     “Communications regarding BofI with The New York Times or any other reporters or third parties are relevant to whether and what extent Erhart disseminated any confidential information belonging to BofI,” Stormes wrote.
     The ruling applies to communication to and from Gilliam, as communications to her may speak to the nature of any information Gillam provided to the media, Stormes wrote.
     The judge denied without prejudice Gillam’s argument that allowing discovery of communications between her and The New York Times would reveal her litigation strategy.
     Stormes told Gillam to produce a “privilege log” describing the nature of her communications with the Times and how that could reveal her litigation strategy.
     Gillam did not return an emailed request for comment.
     The Bank of Internet is represented by Polly Towill with Sheppard Mullin Richter and Hampton in Los Angeles, who did not return an email request for comment.

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