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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:

Comments and color always appreciated!! Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.


Related Sense on Cents Commentary

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

  • Rock

    Take the veil of propriety off the wall of that building in the SEC report and you would not be hard pressed to define the whole thing as one large racket!!

  • Lou

    There have always been ‘codes of silence’ throughout industry. How do you expect people to make an honest buck? It’s not easy. A little cheating here and there and nobody is really getting hurt, right?

  • Randy

    Sheesh come on guys.. who amongst them is going to step outside their little coterie of evil-doers and trash their entire career and future earning capacity for the miniscule bounty offered by the SEC, especially when it is readily apparent that they would be complaining to the very people with whom the evil-doers are in cahoots?

    Besides.. this country has a long, long history of indoctrinating it’s people against the actions of being a tattle-tale from the time we all enter grade school.

    With the absolutely ridiculous rewards for coming forward to spill the beans while destroying their own careers in the process, well, you can readily see why extremely few ever even attempt to do “the right thing.” Also, since you never really know how high up the ladder the corruption goes in the oversight agencies, you simply dare not take the risk.

    • LD

      Sad, but true. But let’s make sure America knows that there really is no pretense of investor protection so they can move forward accordingly.

      In fact, I think that is exactly what we are seeing right now given the anemic volumes in our equity markets.

      Wall Street is left to trade with itself and pretend the market has some depth when, in fact, it does not.

      Better not to even have the whistleblower program, though, than to pretend it exists. Lastly, the heads of all the banks should be called on the carpet and mandated to outline whistleblower protection programs within their organizations.

  • Randy

    Well, I I guess I thought it has been proven painfully obvious that we had no investor protection from FINRA and that obviously holds true for the SEC as well, but I guess you are right.. the public needs to hear about it again and again until they get it and insist that their representatives take meaningful action to fix things.

    However, as you can already see.. Dodd and other representatives are working to rapidly pass a financial reform bill that barely reforms anything, while promising to later include things that we all recognize as painfully obvious necessities. My guess is almost no one has truly read it and it will get crammed down much like the pitiful health reform bill whether we like it or not.

    The markets are really just giant casinos that were set up by design to fleece the intermediate players. We retail folk (both investors and traders) were just an afterthought and of course easy money for them as well. Call it Las Vegas-East (or MidWest if you prefer) and Goldman, Morgan, FINRA and the SEC are the “house” and even slicker than the mafia. Why? Because they were smart enough to gain control of the governmental oversight agencies such that they can pretty much get away with market practices and dealings that the rest of us might deem dishonest and perhaps even illegal.

    Thanks to you for continuing to shine a light on the real activities and/or lack thereof of by those we sent to Washington and pay to protect and serve us. I hope it is making a real difference because I know that so many people are very angry with today’s government that performs neither of those functions in a suitable manner.

    • LD


      I take no credit for the report by the Project on Government Oversight on FINRA that was sent to Congress, but I will tell you that I spent a fair bit of time with an investigator from POGO and know that POGO accessed virtually all of my work on FINRA prior to drafting their report.

      Will anything come from that? Who knows, but I remain inspired and continue to make interesting contacts in and around Washington. I am not at liberty to shed any light on any of these discussions now but I will tell you this, I’m not even winded and as people pick up on the stench from the Wall Street-Washington incest they get increasingly enraged.

      America wants answers…and it isn’t getting them.

  • robertsgt40

    I seem to recall GW say that blowing the whistle wouldn’t protect the individual from prosecution/persecution. Ask the guy that blew the whistle in London about the market manipulation of gold by JP Morgan. He had his car t-boned. Many before them have “bought the bullet”.

    • LD

      I repeat….

      the heads of all the banks should be called on the carpet and mandated to outline whistleblower protection programs within their organizations.

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