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December 8, 2011

SEC’s Office of the Whistleblower Received 334 Tips During FY 2011

The Securities and Exchange Commission's Office of the Whistleblower says it has already received 334 tips since becoming operational in August 12. The office issued its fiscal year 2011 report last month.

Per the report, between August 12 and September 30, which was when FYI 2011 ended, most of the complaints received by the office involved the areas of:
• Market manipulation
• Offering fraud
• Corporate disclosures and financial statements

The SEC’s whistleblower office received complaints from 37 states—the most, at 34, came from California—and a number of foreign countries, with the majority from China and the United Kingdom. Officials say that the quality of the tips they’ve been receiving has gotten better.

The SEC’s Office of the Whistleblower has not given out any awards yet. One reason for this is that the 90-day reward application period for applicable cases is not yet over. Eligible tipsters are those that provided information that led to securities cases resulting in monetary sanctions of over $1 million.

According to a survey conducted by one employment and labor law firm, S & P 500 senior executives and top officers at other organizations are worried about this bounty program and its monetary incentive that could convince the more reluctant whistleblowers to come forward. 73% of respondents said that they considered retaliation and whistleblowing to be emerging risk areas. Many said that even as the number of whistleblower tips will likely go up, their companies are only moderately prepared to deal with these claims.

Under Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 922, if the following circumstances apply, the SEC must pay 10-30% of any money the government to the whistleblower:

• The whistleblower voluntarily gave the insider information
• The information is original, comes from the tipster’s independent analysis or knowledge, and didn’t come to the Commission from any other source
• The information allows the SEC to bring a successful enforcement action
• Monetary sanctions are more than $1 million. Penalties, interest, disgorgement and any other monies are part of this consideration.

Meantime, the Government Accountability Office says in its new report that it found that the financial statements belonging to the SEC's Investor Protection Fund for FY 2010 and 2011 were materially fair. Whistleblower bounties are paid from that fund.

The GAO also said that in FY 2011 the SEC made significant steps forward in terms of remediating material weaknesses in its internal control for financial reporting, information systems, and account processing. Although these issues are not material anymore, the GAO felt that they should still be addressed in its report. The four areas where the significant deficiencies existed were:

• Budgetary resources
• Information security
• Accounting processes and financial reporting
• Filing fees and registrant deposits

The Securities and Exchange Commission's Office of the Whistleblower FYI 2011 Report

Companies Anticipate Rise in Whistleblower Claims According to Littler Survey, 96 Percent of Senior Executives Reveal Growing Concern, Littler, November 14, 2011

Securities and Exchange Commission’s Financial Statements for Fiscal Years 2011 and 2010, GAO (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

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

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

Continue reading "SEC’s Office of the Whistleblower Received 334 Tips During FY 2011" »

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Posted In: SEC , Whistleblower Lawsuits

May 5, 2011

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

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

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Posted In: Deutsche Bank , Financial Firms , Goldman Sachs , Texas Securities Fraud , Whistleblower Lawsuits

April 28, 2011

SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro

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.

Related Web Resources:
SEC's Mary Schapiro Talks About Whistleblower Office, 12b-1: Exclusive Interview, AdvisorOne, April 26, 2011

Potential whistleblowers have little to lose and millions to gain with the SEC's reward system, RiaBiz, April 14, 2011

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 "SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro" »

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Posted In: Whistleblower Lawsuits

December 18, 2010

Why Whistleblowers Should Act Quickly and Consult Competent Legal Counsel

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 "Why Whistleblowers Should Act Quickly and Consult Competent Legal Counsel" »

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Posted In: Whistleblower Lawsuits

September 15, 2010

Whistleblower Sues Moody’s Investors Service for Defamation

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 "Whistleblower Sues Moody’s Investors Service for Defamation " »

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Posted In: Collateral Debt Obligation , Collateralized Mortgage Obligations , Credit Ratings , Credit Ratings Agencies , Moody's , Subprime Mortgage , Whistleblower Lawsuits

July 29, 2010

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

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

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Posted In: Whistleblower Lawsuits

July 15, 2010

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

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:
SEC settles with Gary Aguirre over firing during Pequot Capital Management probe, Washington Post, June 29, 2010

SEC Agrees to Pay Aguirre $755,000 Over His Firing, Bloomberg Businessweek, July 15, 2010

Pequot to pay $28 million to settle insider trading case, Reuters, May 27, 2010

Continue reading "SEC Settles Wrongful Termination Lawsuit with Whistleblower Gary Aguirre for $755,000" »

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Posted In: SEC , Whistleblower Lawsuits