Tuesday, July 19, 2011

CFTC omits whistleblower rules from public meeting

Whistleblower rules were expected to be finalized at the Commodity Futures Trading Commission's July 19 hearing, at least according to the schedule published on July 12.

But although five rules were approved at the CFTC hearings, the whistleblower rules were not considered.

There were reports that the agency is waiting for a review from Government Accountability Office on Dodd-Frank determining how whistleblower funds collected can be spent. The rule will be introduced at the August 4 rule-making meeting.

Thursday, July 14, 2011

Harvey Pitt no more prescient now than before

Harvey Pitt -- who was Securities & Exchange Commission chair during a time when the SEC let Wall Street run wild, leading to the financial mess the U.S. is in, and who has spent most of career representing corporate interests – once again fails to get it right.

Testifying before the Senate Banking Committee on “Enhanced Investor Protection After the Financial Crisis”, Pitt criticized Dodd-Frank saying it would fail to protect investors. Not surprisingly, he echoed Wall Street’s criticism of the SEC whistleblower program with the usual dire predictions that it will ruin all internal compliance programs.

Such predictions are baseless. The False Claims Act has proved over decades that the threat of whistleblower actions has encouraged the creation and strengthening of internal compliance programs. And although the SEC whistleblower rules do not require internal reporting of fraud before going to the government, there is no need to choose between internal reporting and a reward. You can report internally and wait to see what happens. If the company does nothing, you can go to the SEC. If the company reports to the SEC, you still get a reward if you report to SEC within 120 days of reporting internally.

Whistleblowers generally only turn to outside options when their concerns have been ignored or they have been retaliated against for reporting problems. The SEC recognized when it finalized the rules for the SEC whistleblower program that whistleblowers need the option of going to the SEC directly.

Wednesday, July 13, 2011

Why prosecutors go easy on Wall St.

The reports of wrongdoing by financial firms in the past few years have many people wondering why there haven't been more prosecutions.

According to New York Times reporters Gretchen Morgenson and Louise Story that's a result of new guidelines issued by the Justice Department in 2008. These guidelines allowed prosecutors to take a "softer approach" to corporate crimes and have permitted financial companies to avoid indictments if they agree to investigate and report their own crimes.

The story observes that outsourcing government investigations to the target company is a bad idea. But sometimes the government just doesn't have the resources to investigate important cases. One answer is that Congress needs to increase enforcement budgets so the investigators don't need to ask the criminals to investigate themselves. Another answer is that the investigators can enlist the help of whistleblowers and their attorneys, who have a strong incentive to make sure all of the fraud, not just what the company wants to reveal, is uncovered.