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Wall Street’s ‘Code of Silence’

Posted by Larry Doyle on April 7, 2010 9:03 AM |

Shut up!!!

Imagine being in a situation in which you knew you had to be quiet in order to advance your own personal career, rather than speaking up and blowing the whistle on irregularities and improprieties within your firm. This message is consistently relayed by many a whistleblower who has suffered from having tried to do the right thing. What is the result? Firms tout their virtuous values of integrity, respect, and excellence while effectively muzzling those who would blow the whistle on crimes and illegal practices.

I believe this reality is all too present in many, if not most, industries in our society today. There is absolutely no doubt it is present on Wall Street. Why do I write this? A recently released report from the SEC’s Office of Inspector General David Kotz highlights the fact that the ‘whistles on Wall Street’ have been largely silent for a long time.

The Project on Government Oversight highlights this report in a recent commentary, Not Much Bounty for SEC Whistleblower Program:

For more than 20 years, the Securities and Exchange Commission (SEC) has had a program in place to reward whistleblowers who provide the agency with information about insider trading. But a new audit by the SEC Office of Inspector General (OIG) reveals that the program has almost never been used, is barely recognized inside or outside the SEC, and has fundamental design flaws.

It turns out the SEC has received very few applications in the past two decades for bounties under the program — and only five people have actually received payments since the program first began:


Design Flaws in the Bounty Program
The OIG also found that the program suffers from the following deficiencies: it’s poorly recognized by the public and even within the SEC; the criteria for judging bounty applications is overly vague; the SEC does not have good internal policies to guide staff in reviewing bounty applications; the SEC rarely provides whistleblowers with status reports on their applications (a problem we’ve also heard about at other IG offices); once the applications are passed on, there are no systems in place to ensure that they are processed in an adequate and timely fashion; and the documentation for bounty referrals is often incomplete.

This internal review by the SEC’s OIG grew out of the Madoff investigation. I commend Inspector General David Kotz for his work, but I am tremendously concerned as to whether it will truly be effective. Why am I concerned? Two reasons:

1. An effective whistleblower program strikes right at the deeply embedded culture of Wall Street; and

2. Does America truly think that a career regulator with longstanding ties within the financial industry can break Wall Street’s “code of silence”? Who is this career regulator? SEC chairman and former FINRA head Mary Schapiro.

Once again, I believe we will see Mary and her team play the ‘Mark McGwire card’ and claim they are not interested in talking about the past as they move forward to implement recommendations from the OIG. (Please read my piece “Mary Schapiro and Mark McGwire” from January 15, 2010.) In doing so, I believe the message to Wall Street will be, implicitly and effectively, nothing short of a wink and a nod and “business as usual.”

Perhaps Congressmen Issa, Frank, Kanjorski et al may care to reach out and protect those within the industry who have incriminating information of past improprieties, expose large parts of the Wall Street-Washington incest, and truly allow America to regain a measure of confidence that Washington is working for its’ citizens and not the large monied interests on Wall Street.

To this end, I reiterate my “Sense on Cents Calls for Independent Investigation of FINRA.”

I hope you will want to share this commentary with friends and colleagues.

High five to the loyal Sense on Cents reader who brought this POGO article to my attention. If you’d like a closer look at the 40-page report from the SEC’s Office of Inspector General, please click on the image below for a pdf document:

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Related Sense on Cents Commentary

SEC IG Report: George Demos Pimped Peter Sivere; (January 28, 2010)

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