Compliance &Ethics - Society of Corporate Compliance and Ethics

Featureprovides information to the SEC and is thenconvicted in a criminal case related to thesame violation. In other words, if a company’semployee reports a financial fraud to the SEC,and the same employee is later convicted ina criminal prosecution for taking part in thesame fraud he reported, then he could notrecover a reward.Notwithstanding these major developments,it is essential that the SEC changes itsbehavior towards whistleblowers for the newprovisions to be successful. Over the pastdecade, there has been mistreatment towardSEC employees who were attempting to correctwrongdoing within the Commission, aswell as toward outsiders reporting securitiesviolations to the SEC. The most high-profileexample was the treatment of HarryMarkopolos, who reported Bernie Madoff’sPonzi scheme to the SEC, prior to passageof the Dodd-Frank Act. Markopolos wrotein his book, No One Would Listen, 1 that whenhe attempted to bring Madoff’s crimes to theattention of Meaghan Cheung, the SEC’s NewYork branch Chief of Enforcement, she treatedhim with disdain and eventually ignored him.Furthermore, there have been severalinstances in which the Commission retaliatedagainst mid-level or junior SEC employeeswho spoke up when higher-ups mishandledagency investigations.Perhaps the most outrageous case involvedGary Aguirre, a first-year SEC attorney whowas fired in 2005, after he attempted to investigateformer Morgan Stanley CEO John Mack(also known as “Mack the Knife”) for hisrole in an insider trading scandal, accordingto Rolling Stone’s Matt Taibbi. 2 Aguirre dugup evidence that showed Mack may havetipped off Pequot Capital hedge fund managerArt Samberg that a company namedHeller Financial was about to be bought outby General Electric. Samberg bought stockin Heller before the GE buyout and made $18million dollars. As an apparent quid pro quofor Mack’s insider tip, Samberg included Mackin another financial deal which netted millionsof dollars for Mack.Aguirre, doing exactly what his jobdescription entailed, wanted to interviewMack. Instead, Aguirre’s superiors instructedhim not to investigate Mack, because of Mack’spowerful political connections. After Aguirrecomplained about being prevented fromdoing his job, he was fired. The story endedwhen Aguirre sued the SEC and received a$755,000 wrongful termination settlement.Furthermore, a U.S. Senate report vindicatedAguirre. Samberg later was forced to shutdown Pequot and pay a $28 million fine forhis role in a separate insider trading scandalinvolving Microsoft, according to BloombergNews. 3 John Mack was never punished for hisrole in the Heller scandal.SEC employee Julie Preuitt also facedretaliation when she protested the SEC’s failureto investigate fraudster Robert Stanford’sbillion dollar Ponzi scheme, according to theWashington Post. 4 Starting in the late 1990s,Preuitt repeatedly attempted to investigateStanford, and was blocked by higher-ups tothe point that she felt “absolutely heartsick,”according to her Senate testimony. In 2007,when Preuitt complained after she was againprevented from conducting a detailed investigationof Stanford, she was reprimanded.Also, the agency reprimanded anotheremployee who defended Preuitt.SEC Inspector General David Kotz laterreported that senior officials at Preuitt’s FortWorth office had a practice of shutting downcases that they deemed too complicated.Instead, the office wanted quick resolutions toboost its number of successful cases.Preuitt was vindicated in March of 2012when Stanford was convicted by a jury on 13Compliance & Ethics Professional May/June 2012+1 952 933 4977 or 888 277 4977 | www.corporatecompliance.org 35