Articles Posted in Whistleblowers

Speaking at Compliance Week’s yearly conference, Commodity Futures Trading Commission’s Whistleblower Office Director Vincente Martinez said that personnel in corporate compliance should have an understanding of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act’s anti-retaliation provisions that are part of its whistleblower requirements. Martinez noted that while companies are not mandated to explain the way the whistleblower program works to employees, the “quality of information” that compliance personnel choose to offer in response to whistleblowers wondering whether to bring information to the CFTC could make a company liable if an anti-retaliation claim were to be later brought. “Prudence” must therefore be exercised by compliance staff when dealing with such inquiries.

Under Dodd-Frank, eligible whistleblowers may be entitled to 10-30% of money sanctions when agencies are awarded over $1 million in penalties. These informants are also provided with significant protections against employer retaliation for their decision to step forward. Unlike the 2002 Sarbanes-Oxley Act’s whistleblower anti-retaliation provisions, which requires that an anti-retaliation complaint is first submitted to the Department of Labor, under Dodd-Frank, not only can a whistleblower go straight to federal court, but also jury trials for CFTS and Securities and Exchange Commission whistleblower retaliation claims are allowed.

Also speaking at the conference was SEC Enforcement Division Whistleblower Office deputy chief Jane Norberg. She made clear that foreign whistleblowers have the same anti-retaliation protections under Dodd-Frank even if they are located overseas. Norberg did, however, note that for foreign whistleblowers anti-retaliation process could be impacted by both the courts in that jurisdiction and whether or not the whistleblower submitted the claim in US federal court.

Whistleblower Rodolfo Michelon is suing the Federal Bureau of Investigation and the Securities and Exchange Commission in an effort to obtain records connected to the their probe into his employer, Sempra Energy (SRE). He believes that the SEC may have violated federal securities laws through the “outsourcing” of their investigation into Sempra’s alleged illegal activities to two law firms with “close ties” to the company.

Michelon had filed a whistleblower lawsuit with the Commission accusing Sempra of a number of record and books violations related to gas distribution clients in Mexico. Rather than conduct their own probes, he says that the two government agencies instead allowed the two law firms to investigate. After the firms found that Sempra did not violate securities laws, the FBI and the SEC ended their own investigations into the matter.

Michelon submitted Freedom of Information Act requests asking for certain documents and records related to the case last November and this January, and he says both agencies failed to satisfy his request. He is accusing the SEC of making its “Outsourcing Program” available to Fortune 500 companies,” the biggest financial institutions in the country, and their executives. Michelon contends that the program violates both mandates by Congress and public policy expressions “embodied the Securities Act of 1933,” as well as the Investment Company Act of 1940, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, and the regulations and rules that implement the acts that direct and give the SEC the authority to handle its own probes into those suspected of violating these rules, regulations, and acts. He claims that the SEC “effectively nullified” the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act’s whistleblower provisions with their handling of the Synergy case.

Michelon’s complaint was filed pursuant to the legal theory applied in Aguirre v. SEC. In that FOIA lawsuit, the U.S. District Court for the District of Columbia found that the Commission behaved improperly and public interest in disclosure was greater than the privacy interests of individuals named records related to the SEC’s probe of insider trading that allegedly occurred at Pequot Capital, a hedge fund. The court ordered the Commission to give Gary Aguirre, a former SEC enforcement lawyer, the investigative files sans redactions.

Aguirre had contended that he was let go from the SEC in 2005 as punishment for insisting that a high profile figure in the Pequot investigation be deposed. He later used the records that he obtained to make the SEC reopen its probe into Pequot. In 2010, Pequot, which is now defunct, had to pay $28 million to settle insider trading charges field against it by SEC.

Michelon v. SEC, Justia Docket, April 24, 2012

Whistleblower Sues SEC For ‘Outsourcing’ Bribery Investigation To Sempra Favorite, KPBS, April 30, 2012

Aguirre v. SEC

Freedom of Information Act

More Blog Posts:
SEC Settles Wrongful Termination Lawsuit with Whistleblower Gary Aguirre for $755,000, Stockbroker Fraud Blog, July 15, 2010
ISS Probes Allegations that a Boston Employee Sold Shareholder Information, Stockbroker Fraud Blog, February 21, 2012

SEC’s Office of the Whistleblower In Early Phase of Evaluating Reward Claims, Institutional Investor Securities Blog, March 23, 2012 Continue Reading ›

Per BDO Consulting and Network Inc.’s Quarterly Corporate Fraud Index, the Securities and Exchange Commission’s new whistleblower bounty program may be indirectly leading to a resurgence in corporate internal reporting mechanisms. The index recently reported that during 2011’s fourth quarter, there was a jump in internal reports from employees about fraud incidents. This represented about 21.6% of all compliance issues that are reported internally.

Reports related to fraud involve possible asset misuse, audit and accounting improprieties, and violations of the Foreign Corrupt Practices Act. Network CEO Luis Ramos told BNA that these high reporting numbers may be a result of overhauled processes that the organizations implemented in the wake of the establishment of the whistleblower bounty program, which was mandated by the the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act mandated. Changes have included revisions to anti-retaliation policies and better communication with the employees making the complaints. Many organizations also have now implemented predetermined investigative templates and processes, which allow them to more swiftly respond to a complaint.

Fear of punishment by an employer is one reason many employees prefer to report alleged wrongdoing to an outside source rather than internally. Also, the whistleblower bounty program aims to reward 10-30% of monetary penalties to the person who filed the initial report when the penalty against the offending party is greater than $1 million, which is proving to be additional incentive for going to the SEC. However, it is not a good idea to attempt to pursue your whistleblower case on your own. Our whistleblower recovery lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP will be happy to provide you with a no obligation consultation. You can also visit our SEC Whistleblower Recovery Center online today.

Securities and Exchange Commission’s Office of the Whistleblower Chief Sean McKessy says that the preliminary stage for processing claims stemming from whistleblower cases that resulted in over $1 million in sanctions is underway. McKessy spoke before an Investment Adviser Association-hosted panel earlier this month. He said that the share that an eligible whistleblower can receive would depend on the amount that is actually collected, which might be different from how much a party has been ordered to pay. McKessy made sure to say that the views expressed were his alone and did not reflect those of the SEC or other staff members.

The first reward under the SEC’s whistleblower program, implemented under the

2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, has yet to be issued. Per the program, whistleblowers that provide “original information” of their own accord that leads to the government recovering over $1 million in monetary penalties are entitled to 10-30% of what is paid. SEC staff can also investigate and prosecute employers that retaliate against an employee who stepped forward, regardless of whether or not the federal regulator decided to bring a case based on the information that this person provided.

ISS, a shareholder advisory firm, has placed an employee on administrative leave following allegations that this person sold the confidential voting information of clients in exchange for gifts and cash. MCSI is the parent company of ISS, which advises large shareholders on how to vote their shares while helping them use ProxyExchange.

MSCI CEO Henry A. Fernandez says that the firm decided to conduct its own probe even though the Securities and Exchange Commission has not contacted them about this matter. In papers filed with the SEC, Fernandez noted that client information confidentiality is key to the business and is addressed not just in the ISS Regulatory Code of Ethics, but also is part of employee training.

It was on February 12 that the New York Post reported that a whistleblower complaint had been filed with the SEC accusing the Boston office employee of giving shareholder voting information to corporate boardrooms. The lawsuit claims that the employee provided the information to proxy-solicitation firms working for corporate boards that were seeking to influence the biggest shareholders on executive compensation and profitable mergers. The alleged tipster is accused of using his personal e-mail address to provide the solicitors with the confidential data up to weeks ahead of time. (For example, the Post said that for an upcoming meeting, the ISS employee provided information about upcoming votes from BlackRock and Vanguard. Both companies, however, have refused to confirm whether or not this is true due to a policy to keep voting confidential.)

A shareholder’s votes are supposed to remain private unless he/she chooses to make it known. One reason for this is that shareholders don’t want to experience retaliation in the event that they decide to vote against management. By gaining access to the votes in advance, companies can better strategize on how to get the outcome they want. Sometimes a decision can be so close that just a few votes in favor of/against can make a world of difference.

Shepherd Smith Edwards and Kantas LTD LLP Founder and Stockbroker Fraud Lawyer William Shepherd applauded the whistleblower complaint: “This is exactly how the new ‘Wall Street whistleblower’ law is supposed to work. Improper use of this information would almost certainly not have been reported without this law.”

According to the SEC’s Boston Regional Office, ever since new whistleblower rules were enacted last year, it has received close to seven tips a day. The office’s director, David Berger, noted that unlike in the past, these tips are “sworn… verified.” Financial statements, corporate disclosure, and market manipulation are the topics that have gotten the most tips. Although none of the whistleblowers have yet to receive their percentage of compensation from having stepped forward and notified the government of alleged wrongdoing, Berger says that this is just because not enough time has passed since the lawsuits were filed to allow for the requirements that have to be first fulfilled before the payments can go through.

Advisory firm employee leaking shareholder voting data, whistleblower claims, New York Post, February 12, 2012

Advisory firm probes charge that worker sold shareholder info, Boston Herald, February 17, 2012

More Blog Posts:
SEC’s Office of the Whistleblower Received 334 Tips During FY 2011, Stockbroker Fraud Blog, December 8, 2011

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008, Stockbroker Fraud Blog, May 5, 2011

SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro, Stockbroker Fraud Blog, April 28, 2011

SEC Looking at Other Ways to Communicate with Whistleblowers, Institutional Investor Securities Blog, September 14, 2011 Continue Reading ›

According to Sean McKessy, who is in charge of the Securities and Exchange Commission’s Office of the Whistleblower, the agency is exploring the best ways to communicate with whistleblowers and their lawyers. McKessy spoke as part of a TheCorporateCounsel.net—sponsored webcast panel on whistleblower issues.

Right now, the office is adhering to the communications policies of the SEC’s enforcement division. However, McKessy said that the Whistleblower Office is in the process of coming up with “communicating best practices,” documenting interactions, and developing internal policies and procedures. Proper documentation would hopefully ensure that the necessary information, and the extent that the whistleblower cooperated, are properly recorded so that this information can be presented in the event there is a claim.

The SEC’s whistleblower office is also working on its yearly report to Congress about the progress the program has made, as well as its the investor protection fund that provides whistleblowers who come forward with their financial reward with compensation.

David Becker, who is a former SEC general counsel and was also a co-panelist, spoke about companies considering whether to self-report internal problems. Becker noted that there is greater incentive to self-report when there is a possibility that an employee might go to the SEC first. However, he pointed out that companies considering self-reporting would have to take into consideration how revealing specific information could impact them, as there is certain information that he SEC “will not be able to walk away from.”

Meantime, many companies are now using certification forms. These request employees to notify a company about unethical or unlawful behavior that they observe. McKessey, however, cautioned that unless the forms are properly worded and constructed, they might affect the employee’s ability to come forward to the SEC. That said, he did push for companies to move towards developing systems that allow for the reporting of wrongdoing. As long as an employee fears reprisal and punishments for stepping forward there is a greater likelihood that they won’t say anything.

The whistleblower bounty program is supposed to provide employees that come forward with certain protections. However, a worker can still be fired for company policy violations and poor performance as long an employer provides proper documents showing that the termination would have happened regardless of whether or not the employee was a whistleblower.

Whistleblower Complaints
A whistleblower that steps forward to voluntarily report possible violations of federal securities laws may be entitled to part of the damages collected by the government from the responsible parties. That percentage of the award is 10-30%.

To receive this money, the information provided by the whistleblower must be original and has to result in a successful SEC action ending in an order of monetary sanctions above $1 million.

Stockbroker Fraud
Our securities fraud lawyers are here to help our investor clients recoup their losses.

Office of the Whistleblower, SEC

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008, Stockbroker Fraud Blog, May 5, 2011

SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro, April 28, 2011

Whistleblower Claims SEC is Illegally Destroying Records of Closed Enforcement Cases, Institutional Investor Securities Blog, August 31, 2011

Continue Reading ›

According to SEC employee Darcy Flynn, the Securities and Exchange Commission is continuing to get rid of records from closed enforcement cases. If this is true, then the SEC may be breaking the law. Darcy Flynn has brought a whistleblower case over his allegations.

Flynn has been an attorney with the SEC’s enforcement division. The Washington Post quotes him as claiming that “standing orders to direct the destruction of records” were given to him.

Flynn contends that the agency has been getting rid of certain records for the last 17 years even though this violates federal law. He is also accusing the SEC of misleading government officials about the alleged misconduct. Flynn’s lawyer says that with these records now destroyed it will be much more difficult to hold the SEC for any wrongdoing.

Per the “Records Retention Schedule” investigative case files have to be kept for 25 years. Other documents have to be kept until the National Archives say that they can be destroyed.

In 2010, after Flynn put at an alert over this possible issue, the National Archives and Records Administration asked the SEC to explain. The SEC responded that it would preserve the records until the issue was resolved. Flynn’s concerns at the time were focused on “matters under inquiry” documents. MUIs are preliminary investigative records.

Now, however, Flynn is alleging that it isn’t just MUIs that the SEC is wrongfully destroying. He is claiming that documents from formal investigations, including closed probes, are also being eliminated. Flynn believes that not only are these alleged actions impairing the regulator’s ability to resolve certain securities fraud cases, but they are also adversely affecting its ability to regulate any influence peddling by attorneys that have left the SEC to go work at hedge funds, banks, and other firms under its oversight.

In July 2011, Flynn’s attorney reported the allegations his client made to Sen. Charles E. Grassley (R-Iowa), who has since gone public with them. The lawyer also invoked whistleblower protection on his client’s behalf.

<strong>Per the letter to Grassley, the SEC is accused of:

• Ordering the improper destruction documents related to “matters of inquiry” when the initial probe didn’t lead to an official investigation and files were then closed.

• Retaining an enforcement division policy that leads to 75% of documents obtained in formal investigations and generated by the staff getting tossed out when all but 5% of that should be kept on record.

• Giving staff permission to get rid of internal emails after investigations are concluded.

• Destroying the majority of most staff-generated case documents unless the paperwork falls under a category called ‘formal memoranda.”

Last month, the SEC wrote a letter to the National Archives and Records Administration saying staff had been ordered to keep “all MUI records” and acknowledged that this new protocol is a recent change in policy.

This isn’t the first time that Flynn has acted as a whistleblower. He received about $2.7 million over alleged Medicare fraud in 1993. At the time, Flynn was an insurance-claims auditor. In that whistleblower complaint, he claimed under the False Claims act that the insurer turned in false records related to audits of Medicare payments to hospitals and, as a result, cheated the Medicare program. Without admitting/denying wrongdoing, Medicare consented to pay the government $27.6 million to settle the claims.

SEC still destroying records illegally, whistleblower says, Washington Post, September 6, 2011

More Blog Posts:
Whistleblowers to Be Awarded from $453 Million SEC Fund, Institutional Investors Securities Blog, July 28, 2011

New Bill Calls for Whistleblowers to Notify Financial Firms of Alleged Violations, Institutional Investors Securities Blog, July 23, 2011

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008, Stockbroker Fraud Blog, May 5, 2011

Continue Reading ›