Articles Posted in Whistleblowers

New Bill Calls for Whistleblowers to Notify Financial Firms of Alleged Violations

Published on: July 23, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A new bill introduced by Republicans in the House is mandating that to be able to qualify for the SEC’s new Whistleblower program employees would have to first notify their firms of possible securities violations before going to the Commission. Commenting on the proposed legislation, which is known as the Whistleblower Improvement Act (H.R. 2483), Shepherd Smith Edwards and Kantas founder and Stockbroker Fraud Attorney William Shepherd said: “Does this even make sense: Before an employee anonymously reports his or her company is defrauding people, that employee must first report it to management of the company? The only goal in requiring this would be so the company can sweep the wrongdoing under the carpet rather than get caught. Who do these Congressional folks actually work for?”

Under Section 21F of the Securities Exchange Act of 1934, which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. No. 111-203), whistleblowers that voluntarily give original information about a federal securities law violation that has been committed are eligible for up to 30% of all penalties and fines collected by the SEC over the violation. This latest bill requires employees to first provide information about the alleged misconduct to their employees to qualify for part of the bounty. However, they don’t have to report the alleged violations internally when there is evidence of alleged misconduct involving the highest management levels or other evidence of bad faith by the employer. In many cases, prior to taking enforcement action the SEC would have to notify a company that a whistleblower has passed on information and an investigation is under way.

The new bill would revise the SEC rule that was implemented on May 25 that, per Dodd-Frank, doesn’t require employees to go to their firms internal compliance programs first. Business groups, the defense bar, and some Republican lawmakers had opposed the rule.

Related Web Resources:

Whistleblower Improvement Act (H.R. 2483)

Section 21F to the Securities Exchange Act of 1934 (PDF)

More Blog Posts:

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

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008

Published on: May 5, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Last week, a whistleblower lawsuit claiming that taxpayers were defrauded when the federal government bailed out American International Group was unsealed. The complaint accuses the Houston-based AIG and two banks of taking part in speculative and fraudulent transactions that resulted in losses worth billions of dollars. They then allegedly convinced the Federal Reserve Bank of New York to bail them out with two rescue loans for AIG that were used to unwind hundreds of failed loans.

The complaint focuses on the two emergency loans of about $44 billion that AIG received in October 2008 (The remaining $138 that it got in bailout funds are not part of this case). The money went toward settling trades involving complex, mortgage-linked securities. Some of the AIG-guaranteed securities were underwritten by Goldman Sachs and Deutsche Bank. Both financial institutions join AIG as defendants in this case. The two loans were extended to buy the troubled securities and place them in Maiden Lane II and Maiden Lane III, both special-purpose vehicles, until AIG’s crisis subsided.

The plaintiffs, veteran political activists Nancy and Derek Casady, contend that the rescue loans were improper because the government made them without obtaining a pledge of high-quality collateral from AIG. They maintain that the Fed board does not have the authority to “cover losses of those engaged in fraudulent financial transactions.”

Their whistleblower lawsuit was filed under the False Claims Act. This federal law lets private citizens sue on behalf of government agencies if they know of a fraud that occurred. Plaintiffs are able to attempt to recover money for the government and its taxpayers. Plaintiffs usually receive a percentage if their claim succeeds.

According to the New York Times, senior fed officials have admitted to taking unusual actions in 2008 because the global financial system was on the verge of falling apart.

Related Web Resources:
Claiming Fraud in A.I.G. Bailout, Whistle-Blower Lawsuit Names 3 Companies, The New York Times, May 4, 2011
False Claims Act, Cornell University Law School

Related Web Resources:
Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action, Stockbroker Fraud Blog, April 27, 2011
Texas Securities Fraud: FINRA Suspends Pinnacle Partners Over Failure to Comply with Temporary Cease and Desist Order Involving “Boiler Room” Operation, Stockbroker Fraud Blog, April 19, 2011
SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro, Stockbroker Fraud Blog, April 28, 2011 Continue Reading ›

SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro

Published on: April 28, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In an interview with AdviserOne, Securities and Exchange Commission chairman Mary Schapiro spoke about the agency’s new Whistleblower Office. The office was created per a Dodd-Frank mandate that entitles individuals who voluntarily give the Commission original information leading to an SEC enforcement action and other related actions a reward.

Schapiro says that the SEC is in the process of “finalizing” its whistleblower rules. She also noted that the agency’s newly acquired whistleblower authority is increasing the quantity of quality tips it is receiving, which should allow for better enforcement. The SEC receives thousands of tips annually.

Schapiro says that under a new Tips, Complaints, and Referral System, tips can all be placed in one database that will allow the information to be shared throughout the agency. She said that the previous inability to share information was a factor in the Madoff Ponzi scam that bilked investors of billions.

Prior to Dodd-Frank, the SEC could only award whistleblowers in insider trading cases. There was, however, a cap of 10% of the penaliteis collected in the action.

Whisteblower Awards
To be considered for an award, a whistleblower will have to provide information that results in successful enforcement action or an administrative one that leads to monetary sanctions of over $1 million. The whistleblower could receive 10-30% of the total sanctions collected. The amount awarded will depend on the type of help the whistleblower provided and the significance of the information given.

Also, the information from the whistleblower needs to either have led to a new investigation or examination, or if the alleged misconduct was already under investigation, then the whistleblower needs to have provided information that couldn’t have been obtained otherwise and was key to the action’s success.

Our securities fraud law firm represents victims of investment fraud and other financial scams.

More Blog Posts:
Ex-UBS Employee Can Proceed with Her Whistleblower Claim, Says District Court, Institutional Investor Securities Blog, February 15, 2011 Why Whistleblowers Should Act Quickly and Consult Competent Legal Counsel, Stockbroker Fraud Blog, December 18, 2010
Whistleblower Sues Moody’s Investors Service for Defamation, Stockbroker Fraud Blog, September 15, 2010 Continue Reading ›

Ex-UBS Employee Can Proceed with Her Whistleblower Claim, Says District Court

Published on: February 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the District of Connecticut says that ex-UBS (UBS) employee Mary Barker’s whistleblower claim alleging that she was retaliated against for she reporting a purported accounting mistake can move forward. Her Age Discrimination in Employment Act claim, however, was dismissed.

Barker, who used to work UBS’s Stamford, Conn. Office, was given the responsibility of reconciling UBS’s existing exchange seat shares with old company records in December 2006. The valuation had to take place because UBS’s holdings of exchange seat assets were redistributed after the Commodity Exchange Inc. and the New York Mercantile Exchange merged.

Barker allegedly found that some of UBS’s historical exchange seat holdings had either not been accounted for or had been improperly accounted on the financial firm’s balance sheet. UBS went on to realize that about $80 million from the sale of exchange seats had been overlooked.

Barker told her manager about the brokerage firm’s alleged failure to disclose the seat holdings in February 2007. She says that not only did her manager fail to report her findings, which violated federal securities laws, to upper management, but also, her worries were never addressed. She says that her interactions with other UBS officials over the matter were similarly unsatisfying.

Despite getting a “Thank You Award” for her efforts, Barker says that UBS began to take retaliatory action against her. Not only did she get a poor review rating that year and fail to get a salary bump the following year, but also she was passed over for a promotion and her complaints were disregarded. In May 2008, Barker was told that the financial firm was letting her go due to a general reduction in UBS’ workforce.

Related Web Resource:
Barker v. UBS AG

More Blogs on Whistleblower Cases:

Why Whistleblowers Should Act Quickly and Consult Competent Legal Counsel, Stockbroker Fraud Blog, December 18, 2010

Whistleblower Sues Moody’s Investors Service for Defamation, Stockbroker Fraud Blog, September 15, 2010

SEC’s Proposal on Implementing Whistleblower Rule Draws Mixed Reactions

Published on: January 3, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Comments to the Securities and Exchange Commission’s proposal to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act’s whistleblower protections have drawn mixed reactions. While some commenters think that employees of publicly traded companies should have to report alleged wrongdoing to internal compliance programs before they can be eligible to a monetary award, others believes that this requirement would make whistleblowers less willing to come forward. Still others have said that whistleblowers shouldn’t be allowed to hire lawyers on a contingency basis. Commenters also were in disagreement over the proposed rule’s overall impact.

Per new Section 21F of the Securities Exchange Act of 1934, a whistleblower program has been established that requires the SEC to monetarily award eligible whistleblowers that voluntarily give the agency original information about a federal securities laws violation if the tip results in successful enforcement of an administration or judicial action that leads to sanctions of over $1 million. The SEC proposed rule has the agency’s Whistleblower Office administering the program, prohibits whistleblowers that engaged in wrongdoing from being eligible for the financial award, and includes anti-retaliatory provisions protecting whistleblowers.

One theme touched upon in many of the comment letters is the desire for the SEC to make the final rule more “user friendly,” which is a term found in the statute. Critics believe that the SEC’s proposal doesn’t meet that standard. Still others expressed concern about what the SEC would consider “original” information presented by a whistleblower. Also, while some commenters wanted firms’ internal compliance programs to have the opportunity to initiate its own meaningful investigation first before the whistleblower gives the SEC a similar submission, the National Whistleblowers Center submitted a comment letter arguing that employees shouldn’t have to report alleged wrongdoing internally first to qualify for the SEC whistleblower program.

Why Whistleblowers Should Act Quickly and Consult Competent Legal Counsel

Published on: December 18, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Court of Appeals for the Ninth Circuit has affirmed that an ex-Nordstrom Inc’s (JWN) technology official’s complaint that her firing violated the Sarbanes-Oxley Act’s whistleblower protections is untimely. According to Judge Milan D. Smith Jr., SOX’s 90-day limitations period started running on plaintiff Carole Coppinger-Martin’s last day on the job and not when she discovered that her termination by Nordstrom was in alleged retaliation for reporting potential Securities and Exchange Commission violations. The decision affirms an administrative law judge’s ruling.

Coppinger-Martin was hired as the business information systems strategic planning group chief technical architect for Nordstrom in 1999. Per the court, during the summer of 2005, she told her immediate supervisor that she thought that Nordstrom’s information systems had “security vulnerabilities” that exposed the company to the possible SEC violations. Soon after making her report, Coppinger-Martin was given an unfavorable review. In November of that year, Nordstrom told her that it was eliminating her job responsibilities, there were no other opportunities for her within the company, and that they were terminating her employment in January 2006. Coppinger-Martin worked for the company until April 21, 2006.

On July 19, a Nordstrom employee allegedly told her that other workers were attending to her former job duties. It was then that she realized that she may have been let go for notifying senior management about her SEC concerns.

On October 13, Coppinger-Martin submitted a SOX whistleblower claim to the Occupational Safety and Health Administration, which denied her relief. While asked that an administrative law judge hear case, Nordstrom moved to have the case dropped as untimely on the grounds that the 90-day limitations period started running either in November 2005, when she was told that she was being let go, or on April 21, 2006, which was her last day on the job.

Coppinger-Martin argued that the 90-day limitations period did not start running until July 19 when she first found out that her job duties had not been eliminated. She attributed Nordstrom’s alleged hiding of the facts behind its retaliatory motive to her accrual date of claim.

In affirming the ALJ’s finding, the 9th Circuit noted that it has held in the past that a plaintiff’s claim accrues upon finding out about the actual injury and not when a “legal wrong” is suspected. The court concluded for Coppinger-Martin, this would have been when she found out that she was fired.

Related Web Resources:
Coppinger-Martin v. Solis

Sarbanes-Oxley Act

Institutional Investor Securities Blog
Continue Reading ›

Wall Street Complains Financial Reform Will Mean More Lawsuits. Is This Bad?

Published on: October 16, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Public companies and employers may have to contend with an unlimited number of expensive securities lawsuits under the whistleblower provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which not only includes provisions for an expanded statute of limitations under which employees can sue employers for discriminatory action but also sets up a new Securities and Exchange Commission bounty program. Labor and Employment Attorney Goldsmith recently spoke about this possibility while participating in a Practicing Law Institute panel. Goldsmith also noted that Dodd-Frank extends the whistleblower protections of the 2002 Sarbanes-Oxley Act to companies’ affiliates or subsidiaries and nationally recognized statistical rating organizations’ employees.

Goldsmith contends that by enacting Dodd-Frank, Congress was showing “overt hostility” toward predispute arbitration agreements by not having them apply to whistleblower issues. He notes that while the Dodd-Frank provisions are supposed to make up for the limitations and loopholes of SOX, certain questions have arisen that have yet to be addressed.

Under section 922 of Dodd-Frank, the SEC is allowed to award whistleblowers between 10% and 30% of any penalty that above $1 million. Cases may include those brought by the Justice Department, the SEC, other federal agencies, and state attorneys general. The SEC started getting tips and complaints even before the statute was enacted.

With its new bounty program, the SEC is expected to increase its enforcement efforts. This could result in huge payments to whistleblowers, who can also receive cooperation credit if they were violators. However, former Chief Litigation Counsel Luis Mejia, who recently spoke at a DC bar event, said that he believes that Dodd-Frank’s whistleblower provision is “the most dangerous” of issues and could undermine corporate compliance programs. Rather than reporting problems internally, giving the company a chance to self-remediate or weed out old or unfounded claims, an individual might be more likely to “blow the whistle” because of the financial rewards.

Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Lawyer William Shepherd had a different perspective to offer: “Regulation of Wall Street and business – or the lack of it – has obviously been a disaster over the last decade. Meanwhile the business community clamors for privatization to cure government waste and ineptness. From the birth of this nation lawsuits have been a form of privatization of government power. Why hire more police when lawyers can handle the job much more efficiently and at no cost to the taxpayers? The same is true of whistleblowers. Why use taxpayer dollars to investigate when those on the inside already understand the problem? Believe me, white collar criminals are more afraid of lawyers and whistleblowers than they are of regulators, many of whom they own! That is why they are afraid of the proposed reforms.”

According to a recent Senate report, whistleblowers can take credit for exposing 54.1% of fraud scams in public companies. Meantime, the SEC and auditors reportedly have uncovered just 4.1% of the schemes.

Related Web Resources:
Dodd-Frank Wall Street Reform and Consumer Protection Act (PDF)

Whistleblower Sues Moody’s Investors Service for Defamation

Published on: September 15, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Ilya Eric Kolchinsky, a former Moody’s Investors Service executive, is suing the credit ratings agency for defamation. This is one of the first lawsuits involving a Wall Street company and an ex-employer that blew the whistle on it. Kolchinsky is seeking $15 million in damages in addition to legal fees.

Kolchinsky claims that Moody’s tried to ruin his reputation after he publicly talked about problems with its ratings model. Kolchinsky, who supervised the ratings that were given to subprime mortgage collateralized debt obligations (many of these did not live up to their triple-A ratings), testified before Congressional panels about his concerns. He addressed the potential conflicts that can arise as a result of the issuer-pay ratings model, which lets banks and borrowers that sell debt securities pay for ratings. He alleged securities fraud and claimed that the ratings agency placed profits ahead of doing their job. He also claimed that Moody’s lacked the resources to enforce its rules.

Kolchinsky contends that Moody’s began attacking him through the media and that the statements that the credit ratings firm issued have caused him to become “blacklisted by the private sector financial industry.” Moody’s suspended him last year. In his civil suit, Kolchinsky notes that he was attacked by the credit ratings agency even though it went on to adopt some of his recommendations.

The recently passed financial reform bill provides greater protections for whistleblowers while offering financial rewards for those brave enough to tell regulators about their concerns. However, it is unclear whether Kolchinsky’s complaint will benefit from the new law because his case involves alleged actions that occurred prior to the bill’s passing.

Related Web Resources:
Former Moody’s Executive Files Suit, New York Times, September 13, 2010
Exec who blew whistle on Moody’s ratings sues for defamation, Central Valley Business TImes, September 14, 2010
Wall Street Whistleblowers May Be Eligible to Collect 10 – 30% of Money that the Government Recovers, Stockbroker Fraud Blog, July 29, 2010 Continue Reading ›

Wall Street Whistleblowers May Be Eligible to Collect 10 – 30% of Money that the Government Recovers

Published on: July 29, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Under the Dodd-Frank Wall Street reform law, Wall Street insiders who become whistleblowers may be eligible to receive 10 – 30% of the money that the government gets back. According to National Whistleblowers Center executive director Stephen Kohn, the prospect of collecting millions could provide potential tipsters with the incentive to act, while saving investors billions.

Under the new law, whistleblowers that provide the Commodity Futures Trading Commission or the Securities and Exchange Commission with “original information” will be allowed to stay anonymous. A securities attorney will then act as an intermediary between the whistleblower and the government. This helps maintain the tipster’s anonymity while allowing the securities fraud allegations to be made.

Already, the SEC has been taking more aggressive measures to award whistleblowers. Just last week, the SEC awarded $1 million to Karen and Glen Kaiser-the largest amount that the SEC has paid for insider information (this was administered under an earlier authority)-after they gave the agency key documents and information for its insider trading case against Pequot Capital.

Karen used to be married to former Microsoft employee David Zilkha. According to the SEC, in 2001, Zilkha tipped Pequot about an upcoming earnings report form his then-employer. Pequot Capital Management Chief Executive Arthur Samberg is accused of trading on the insider information and illegally making $14.8 million. Samberg eventually agreed to settle the SEC’s insider trading allegations against him for $28 million.

Under the Dodd-Frank provisions, whistleblowers that provide key information regarding securities fraud, insider trading, and commodities fraud cases are likely to get a lot more than $1 million.

Related Web Resources:
Connecticut couple gets $1 million SEC award for Pequot, Reuters, July 23, 2010
New Wave of Whistleblowers Could Become Millionaires, CNBC, July 26, 2010
SEC Charges Pequot Capital Management and CEO Arthur Samberg With Insider Trading, SEC, May 27, 2010
Dodd-Frank Wall Street reform law, Open Congress’

SEC

Commodity Futures Trading Commission
Continue Reading ›

SEC Settles Wrongful Termination Lawsuit with Whistleblower Gary Aguirre for $755,000

Published on: July 15, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission and former SEC attorney Gary Aguirre have settled his wrongful termination lawsuit for $755,000. Aguirre has contended that he was fired in 2005 after accusing his supervisors of mishandling an insider trading probe against hedge fund Pequot Capital Management and trying, without success, to interview John Mack, Morgan Stanley‘s then chief executive officer, as part of the probe.

Aguirre claimed that the SEC tried to overlook signs that Pequot had used insider information to trade in Microsoft shares. He also accused the agency of not wanting to interview Mack because of his “political” influence. The SEC had accused Aguirre of insubordination and fired him.

His allegations, however, led to the SEC’s inspector general conducting two internal probes that eventually found that the SEC not only botched its probe of Pequot, but also that it improperly terminated Aguirre from his job. The agency was even accused of strategizing to discredit Aguirre. As for the Pequot investigation, last month the hedge fund and its chief executive Arthur Samberg agreed to settle the SEC’s insider trading case for $28 million.

A Merit Systems Protection Board administrative law judge has finalized the wrongful termination settlement and says it is possibly the largest “of its kind.” Government Accountability Project Legal Director Tom Devine has said that “[u]nfortunately, this large settlement is the exception that proves the rule.” He is calling on Congress to offer “real protections” for regulatory employees. In the meantime, he contends that the existing law will continue to allow “government regulators to turn a blind eye.”

Related Web Resources:
Pequot to pay $28 million to settle insider trading case, Reuters, May 27, 2010 Continue Reading ›