It's not easy being a whistleblower.
Just ask the few at the U.S. Securities and Exchange Commission's Office of Inspector General, the SEC's independent watchdog group that polices everyone at the SEC, when they filed a complaint against two of their own.
Last year, after whistleblowers in the IG's office claimed one of their supervisors and a junior subordinate were guilty of "time and attendance fraud" because the "two employees regularly disappeared together for several hours during workdays and engaged in inappropriate conduct in the office," the unappreciated whistleblowers had to then blow the whistle on the superiors they complained to for retaliating against them for blowing the whistle on their buddies.
If you think superiors retaliating or even threatening to retaliate against would-be whistleblowers could impede the investigations the SEC's supposed to conduct... you're right.
It Can Pay to Whistle While You Work
This may look like a small example, or perhaps just one scandal of many.
But what if it happened at the SEC to would-be whistleblowers years before Bernie Madoff's Ponzi scheme was discovered?
I'll give you the facts, and then I want you to be the judge.
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In the small arena last year, the IG's probe of the supervisor and subordinate accused of time and attendance fraud was led by two senior officials. One of those senior officials hired and supervised the two employees.
It also turns out that Carl Hoecker, the SEC's Inspector General since 2013, appointed one of the two employees under investigation to, according to The Wall Street Journal, "help coordinate a review of procedures in the inspector general's office." Interestingly, the target of the complaint "removed language designed to prevent conflicts of interest affecting internal investigations, such as allegedly happened in this case," reported the WSJ.
Something smells fishy here.
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Maybe a close relationship between the investigating superiors and the employees under investigation is why the investigators found "insufficient evidence to conclude the two employees had an inappropriate relationship."
Now, keep in mind, this all occurred well after the SEC's Office of the Whistleblower was signed into law in 2010. According to the office's website, it has awarded more than $162 million for "tips resulting in enforcement actions" since 2011. For an organization that puts such a high premium on its whistleblowers, one would assume that it would take them seriously. Of course, that's when there's money to collect that's not just whistling Dixie. But when there's no money, or when that whistleblowing makes some friendlies frown, the whistling seems to fall on deaf ears.
Inspector General Hoecker also serves as chairman of the investigations committee of the Council of the Inspectors General on Integrity and Efficiency. That Council, which represents inspectors general across the federal government, reviewed the allegations of retaliation by Mr. Hoecker and did nothing.
The potential irony here is staggering, but the situation may be even bigger than what these facts suggest.
Plenty of Whistleblowers, Not Enough Listening
What good are whistleblowers if they get blown off?
Not good at all, if you ask me. And yet, it seems to be exactly what happened in the Bernie Madoff case, according to the Report of Investigation by the SEC (Case No. OIG-509, if you're interested in looking it up).
The executive summary is as follows:
The OIG investigation did not find evidence that any SEC personnel who worked on an SEC examination or investigation of Bernard L. Madoff Investment Securities, LLC (BMIS) had any financial or other inappropriate connection with Bernard Madoff or the Madoff family that influenced the conduct of their examination or investigatory work. The OIG also did not find that former SEC Assistant Director Eric Swanson's romantic relationship with Bernard Madoffs niece, Shana Madoff, influenced the conduct of the SEC examinations of Madoff and his firm. We also did not find that senior officials at the SEC directly attempted to influence examinations or investigations of Madoff or the Madoff firm, nor was there evidence any senior SEC official interfered with the staffs' ability to perform its work.
The OIG investigation did find, however, that the SEC received more than ample information in the form of detailed and substantive complaints over the years to warrant a thorough and comprehensive examination and/or investigation of Bernard Madoff and BMIS for operating a Ponzi scheme, and that despite three examinations and two investigations being conducted, a thorough and competent investigation or examination was never performed. The OIG found that between June 1992 and December 2008 when Madoff confessed, the SEC received six substantive complaints that raised significant red flags concerning Madoffs hedge fund operations and should have led to questions about whether Madoff was actually engaged in trading. Finally, the SEC was also aware of two articles regarding Madoffs investment operations that appeared in reputable publications in 2001 and questioned Madoffs unusually consistent returns.
It sure looks to me like plenty of would-be whistleblowers were huffing and puffing to the SEC... and the SEC looked the other way.
You be the judge: Is the SEC doing all it can to root out corruption in its organization and conducting its investigations honestly? Or are the whistleblowers helpless in the face of their superiors' influence?
Let me know what you think in the comments below.
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The post SEC Whistleblowers Are Talking; Here's What They Have to Say appeared first on Wall Street Insights & Indictments.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
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