Fraud up; SEC enforcement up; need for whistleblowers up

Posted on February 14, 2010 by Richard Renner

The LA Times reported last week on a series of trends in securities fraud. The $65 billion lost in the Madoff scandal highlights the huge losses millions of investors suffer as a result of corporate fraud.  Meanwhile, the new enforcement chief at the Securities and Exchange Commission (SEC) reports a dramatic rise in enforcement actions. The numbers of formal investigations and restraining orders have approximately doubled.  The total sum of restitution orders has more than doubled.

After serving his first year as the SEC's enforcement director, Robert Khuzami is now calling for improving the protections for whistleblowers, and even rewarding them for turning in their bosses or co-conspirators.  Khuzami proposes "cooperation agreements" that could assure whistleblowers that they will receive leniency or exemption from SEC enforcement action, or legal assistance in the event of prosecution. Khuzami is also calling for changes in the law to protect whistleblowers and even to reward them financially. "Whistle-blower laws provide a powerful incentive for people to come forward," Stephen M. Kohn told LA Times reporter Kathy M. Kristof.  Kohn is Executive Director of the National Whistleblowers Center. Kohn adds,  "The U.S. government has collected billions and billions of dollars as the result of the False Claims Act." Khuzami's call for a whistleblower reward recognizes what works.  The reward provided by the False Claims Act (FCA) has recovered billions of dollars for U.S. taxpayers.

Kristof's article notes that the success of Khuzami's new proposal may hinge on what happens to the world's most famous corporate and tax fraud whistleblower, Bradley Birkenfeld.

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Attorney applauds whistleblower reward in financial oversight bill

Posted on August 6, 2009 by Richard Renner

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Attorney Dan Hurson used to work for the Securities and Exchange Commission (SEC). This week he cheered for the whistleblower provision in President Obama's proposal to overhaul our regulations of financial markets.  "This may be the beginning of the golden age of whistleblowing," he writes. "The potential for such a statute, covering all of the growing jurisdiction of the SEC, is vast."

"Of course, the SEC will have to listen to its whistleblowers, not just offer to pay them," he adds. Currently, the SEC can reward whistleblowers for providing information about insider trading. The new proposal would allow rewards for whistleblowers on any matter enforced by the SEC.  Hurson hopes that the SEC will use the new authority to establish a whistleblower office to coordinate intake and encourage whistleblowing.

 

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Bill seeks to create SEC whistleblower reward

Posted on July 14, 2009 by Richard Renner

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Several news sources have reported on a proposal by the Obama Administration to create a monetary reward for whistleblowers who help the Securities and Exchange Commission (SEC). The Money Times reports that under current law, the SEC has the authority to reward individuals who provide tip-offs on insider-trading violations. However, this new bill will allow the SEC to set up a fund using the fines and penalties collected from enforcement actions and would reward whistleblowers from this fund. The bill is called the Investor Protection Act of 2009.
 

SEC Chairman Mary Schapiro stated, "These measures will help reduce the likelihood of investor fraud and facilitate SEC action against bad actors involved in securities laws violations."  The same bill would increase the authority of the SEC to prohibit compensation plans that interfere with an employee's fiduciary duties. The SEC would have the authority prohibit agents from advising clients when they have a conflict of interest, and could bar violators from working in the industry.

"It provides the SEC with a tool that it needs to ensure that such side payments or sales practices or conflicts of interest do not, in fact, interfere with investor interests," Michael Barr, the U.S. Treasury's assistant secretary for financial institutions, told Reuters. Reuters adds that the bill would prohibit cold calling for new customers.

The RiskMetrics Group reports that the bill would also restrict language that requires investors to use binding mandatory arbitration to resolve disputes.

This blog entry was written with assistance from intern Evan Mascagni.

 
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SEC May Pay Whistleblowers

Posted on April 28, 2009 by Lindsey Williams

Securities & Exchange Commission (SEC) chairwoman Mary Schapiro speaking at the Society of American Business Writers and Editors’ conference on Monday announced that the SEC will ask Congress for “whistleblower authority” similar to that used by the IRS in investigating tax fraud.  Three independent studies have found that whistleblowers are the most effective way to detect and deter fraud.  It is about time that the SEC recognize the contributions of whistleblowers and help protect them.

Chairwoman Schapiro admitted that the whistleblower payment program the SEC already has for insider trading has not been used successfully.  She also admitted that the SEC staff cannot manage the 750,000 to 1.5 million tips and complaints they receive each year.  Chairwoman Schapiro stated that “we need to leverage third parties” to “help us focus on the [cases] where there’s the highest probability that there’s a really big problem that we can tackle.”  A whistleblower rewards program is a step in the right direction for the SEC.  In 2007, the rewards provisions in the federal False Claims Act helped recover over 2 billion taxpayer dollars from dishonest contractors.  For more information on how whistleblowers help protect Americans from fraud please see the National Whistleblowers Center’s new Fighting Fraud page.  Also, if you would like to get more involved in the fight to protect all federal employee whistleblowers please sign the petition.
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In Other Whistleblower News...3 More Important Stories

Posted on February 6, 2009 by Marshall Chriswell

If you haven't noticed, we have been really focused on passing stronger whistleblower laws in the economic stimulus bill. We had a major success when the bill passed the House of Representatives, and now we are moving on to the Senate. Although this legislation is the major whistleblower story this week, there are a few other stories on our radar, and I just wanted to share them with our readers.


First, and easily the second biggest whistleblower-related news story of the week, is the testimony of Harry Markopoulos, a financial analyst who tried to blow the whistle on Bernie Madoff's $50 billion fraudulent Ponzi scheme for over a decade. Markopoulos offered stunning testimony before the House Financial Services Committee this week, condemning the SEC for ignoring his reports and mismanaging the investigation. Markopoulos told lawmakers that he "gave them [the SEC] a road map and a flashlight to find the fraud, and they didn't go where I told them to go.”

Here are some articles detailing his testimony:

CBS NEWS: "Madoff Whistleblower is Finally Heard"
CNN MONEY: "Madoff Whistleblower Blasts SEC"
TIME: "A Madoff Whistleblower Tells His Story"


Now for some good news. Along with the legislative progress being made at the national level, two states are considering statutes to create and/or strengthen whistleblower protections.  This Minnesota Star-Tribune opinion piece explains the how Minnesota (and all states) can benefit from a False Claims Act. Minnesota's legislature is considering enacting an FCA modeled on the federal law.


North Dakota is also considering strengthening its whistleblower laws after recent retaliation against state employees revealed that the laws are inadequate.


Our last bit of news comes from Texas, where Marilou Morrison, a former employee of the Texas Commission on Human Rights was awarded a jury verdict of nearly $1 million after suffering retaliation for blowing the whistle on racial discrimination in the agency's hiring practices. The kicker is this: the Texas Commission on Human Rights is the agency that is supposed to enforce laws against discrimination. Ms. Morrison's attorney Gary Bledsoe summed it up nicely by saying, "The agency that is supposed to enforce civil rights is being hit with basically a million dollar judgment for violating the very statutes they are required to enforce."


Ok, now that you are up to date on whistleblower news from around the country, keep checking back for more information on the federal employee whistleblower legislation!

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