Compliance &Ethics - Society of Corporate Compliance and Ethics

FeatureCompliance & Ethics Professional May/June 2012criminal counts of fraud for stealing billions ofdollars from investors. 5 If the SEC would haveheeded Preuitt’s calls for action in the late1990s, it could have prevented Stanford fromstealing as much money as he did.The recent whistleblower case of SECattorney Darcy Flynn shows improvementin agency treatment toward whistleblowers,yet some troubling signs remain. In 2010,Flynn was given an assignment to destroydocuments related to past investigations offinancial firms, which he later realized wasillegal, according to the Washington Post. 6 Ifthe SEC later received more information thatcould show a pattern of fraud when tied to theprior investigation, getting rid of the past evidencecould prevent the SEC from connectingthe dots. Flynn’s concerns were brought to theattention of SEC senior management, yet SECstaff continued to discard documents. Flynnalso made requests to Chairman Schapiro’soffice for certain protections for himself, whichwere not granted.Flynn then alerted Senator CharlesGrassley, as well as other members of government,and invoked federal whistleblowerprotections. Of even greater concern, Flynnallegedly witnessed his seniors at the SECtrying to concoct an evasive response to theallegations, according to the report of SECInspector General Koch. 7According to Taibbi, Flynn also broughtanother troubling allegation to the government’sattention that he witnessed back in2001. 8 At that time, Flynn and other agentswere investigating Deutsche Bank for fraud,when the investigation was mysteriously shutdown by the agency’s enforcement division.A few months later, the director of the SEC’sEnforcement Division, Dick Walker, was hiredas Deutsche Bank’s general counsel.While there have been no reports of directretaliation against Flynn, it is noteworthy thatFlynn has retained the former SEC lawyerAguirre as private counsel. ConsideringAguirre’s prior victory over the SEC, theagency may be loathe to attempt anotherpublic battle with him.The SEC’s troublesome past with internaland external whistleblowers leaves an impressionthat the agency does not value them. Afailure to treat internal whistleblowers appropriatelywill only further reduce the agency’scredibility with the general public, and callinto question its dedication to fair and ethicallaw enforcement.However, recent developments at theOffice of the Whistleblower show improvement.Former SEC attorney Jordan Thomas,who was instrumental in developing theoffice, stated that it received hundreds of tipswithin weeks of its opening, according to theWall Street Journal. 9 Thomas, who now practicesin the private sector, said that the agencyis doing its best to encourage whistleblowersto report wrongdoing.The Dodd-Frank whistleblower provisionsprovide the SEC with an opportunity for afresh start in its treatment of whistleblowers.The SEC must do more to change its negativereputation for protecting the high-levelfinanciers that the agency is supposed to bepolicing, as well as preventing any retaliationagainst internal and external whistleblowerswho wish to bring such fraudsters to justice.Otherwise, the Office of the Whistleblowerwill likely fail in its mission and scare awaypeople who wish to expose Wall Streetwrongdoing.It is clear that there are well-meaning andtenacious investigators who work for the SEC.This fact cuts against its negative public image,which has suffered terribly since the 2008meltdown. Regardless, the agency has a poortrack record in terms of dealing with whistleblowers.Thus, it is time for the agency’s36 www.corporatecompliance.org +1 952 933 4977 or 888 277 4977