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Kathleen Furey v SEC: Wow, Just Wow . . . Read This

Posted by Larry Doyle on May 16, 2013 6:26 AM |

For those with an interest in learning how our financial regulators fail to perform in upholding both the law and their duty to protect investors, the SEC is “the gift that keeps on giving.

As if we did not already know that the SEC has all too often failed to protect investors, let’s navigate and learn about the case of current SEC employee Kathleen Furey. From a recent complaint brought by Ms. Furey against the SEC:

The three-year ascent of Kathleen Furey to higher levels of official responsibility and pay came to an abrupt halt in 2008, shortly after she was forced to become a whistleblower. 

In August or September of 2007, Furey approached Assistant Regional Director George Stepaniuk, her level-2 supervisor, to discuss the investigation of “name redacted” which seemed to be floundering, just like many investigations of other investment companies or advisers had floundered in the past.

Wouldn’t you like to know what entity this was? I would. Could it have been Bernie Madoff’s operation? Actually a review of the amended complaint reveals that Furey did work on the Madoff case — after it had blown up and the SEC was skewered by Harry Markopolos.

Furey believed that “name redacted” had violated both the Investment Company Act of 1940, and the Investment Advisors Act of 1940. Stepaniuk responded that his group—approximately twenty lawyers in the SEC’s Division of Enforcement — “does not do IM (investment management) cases.” In essence, Stepaniuk had arrogantly admitted that he was flouting two of the four major securities acts that Congress and the Code of Federal Regulations had mandated the SEC and its staff enforce.

Wow. Talk about a bombshell allegation regarding a total abdication of duty within the SEC. If this is not a smoking hot gun of enormous proportions, I do not know what is. I would maintain that Stepaniuk’s statement, if made as Furey asserts, is a clear cut indication of corruption within the commission.

If the SEC “does not do IM cases,” and we know they bring very few cases against the major banks, the question begs what was — and still is — going on within the offices of our nation’s top financial cops?

Furey faced a dilemma: should she join in Stepaniuk’s decision to flout the law and thereby violate the oath she took when she became an SEC employee or risk angering Stepaniuk by disclosing his personal moratorium on enforcing the IAA and ICA to his supervisors, the next logical step to correct the problem.

In October 2007, Furey approached Associate Regional Director David Rosenfeld,  her level-3 supervisor, and requested a transfer out of Rosenfeld’s group.  Furey told Rosenfeld about Stepaniuk’s self-imposed moratorium on “IM cases.” Rosenfeld reacted with indifference. Consequently, Furey took her concerns about Stepaniuk’s IM moratorium a step higher—to the Regional Director of the New York Regional Office, Mark Schonfeld.

Schonfeld offered Furey two options: she could recant her statement about what Stepaniuk told her or she could inform the staff of the SEC’s Inspector General, David Kotz of her allegations. In this way, Furey was forced to become a whistleblower.

Talk about cavalier. Again, if true and as alleged by Ms. Furey, Rosenfeld and Schonfeld should be thoroughly investigated by an external official. Although, if we were to look for Mr. Schonfeld these days, we would have to track him down by going through the revolving door as Schonfeld is now working at Gibson Dunn.

One year later—before the sting of her whistleblower disclosures to Rosenfeld, Schonfeld, and IG Kotz had worn off—NYRO’s indifference to enforcing the securities acts against one prominent investment manager—Bernard Madoff—would produce the worst failure or perhaps more accurately the worst scandal in the SEC’s history.

Whether Furey’s claims of the SEC’s unwillingness to investigate alluded to the Madoff scandal, we may never know. We may also never know why Ms. Furey suffers the consequences of the derailment of what was once a promising SEC career. Why is that? The SEC is contesting  Furey’s request for the necessary info to pursue her case via a Freedom of Information Act request.

Furey remains an employee of the SEC and is fighting to be compensated at the level of which her own reviews indicates that she deserves.

If the new leadership of the SEC might like to convey a meaningful change in the manner in which it handles situations such as these, then they should release the information requested. Or are we to believe that perhaps the SEC still “does not do IM cases” and remains in bed with Wall Street and Washington instead of upholding its mandate to protect investors.

You cannot make this stuff up.

I thank the regular reader who brought this story to my attention. If you find situations such as these as troubling and disturbing as I do, I hope you will care enough to share it with your friends, family, and colleagues. In light of the most recent developments with the DOJ and the AP, whistleblowers need all the support they can get these days.

For those with an interest in reading more about this case, I welcome linking to Furey’s complaint brought against the SEC and related Exhibits:

FUREY v. SEC (click on image to access pdf document):

Furey v. SEC


FUREY RELATED EXHIBITS (click on image to access pdf doc):

Furey Exhibits


Related Commentary
Bloomberg’s William Cohan writes, How Bad Can It Be for SEC Whistleblowers?; May 15, 2013

Larry Doyle

Isn’t  it time or overtime to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Matt

    Don’t you know the SEC’s only job now is to make sure all the boiler-plate on Offering Memorandums is properly spelled? Investors have been operating under the “caveat emptor” standard for a long time now!

  • Larry,
    Revealing story of what we have known seemingly forever. Despite the exposes, the front page headlines, the worldwide visibility of corruption, nothing changes. The world of finance and “enforcement” are binary twins equally flawed and deliberately opaque, even down the language used to baffle the investing public. One part of the solution (which won’t happen) might be to make a major shift from civil enforcement to criminal action in financial cases. It might work, and then again it might not. I have long maintained that if every crook on Wall Street today and their enablers in Washington were fitted with striped suits, a new flock of like-minded weasels would take their place. Years ago, a Wall Street manager suggested that I start a hedge fund with my son. When a scowled at his well-intended suggestion, he took offense. “What’s wrong with you?” he said. I replied, “Bad crowd.” For better or for worse this remains my position today. Bad crowd, worse karma.

  • Russ

    I see everything through the “Madoff prism,” however, it makes perfect sense that the redacted words in the Furey case are “Madoff” related.

    Wall Street money has so infiltrated our government, that there is no longer a reason for the protective agencies our tax payer dollars fund, to exist.

    What else does the SEC not do if it doesn’t watch investment management cases?

    The thing that really kills me is that the government is allowing Wall Street to steal any remaining money that Madoff victims have so as to ameliorate the amount that SIPC has to pay out. In doing so, they have set precedent for future securities fraud cases such that the SIPC lawyer, and only the SIPC lawyer, will determine if SIPC insurance is due to the future victims.

    Talk about a sanctioned conflict of interest!

    If there was no Wall Street money flowing to the politicians, this would never happen.

    • LD


      I would wholeheartedly agree with you on all these points.

      I hope that my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy may make even a marginal impact in elevating these issues and the necessary discussion to address them.

      • Russ

        Can’t wait to read your book. When does it hit?

        • LD

          As of now scheduled for an early 2014 release.

  • I have been asking the SEC to do its job to bring the International Bank for Reconstruction and Development into compliance with the securities laws, and so have all 50 state attorneys general, with similar results. The SEC’s state capture is about to plunge the world into a currency war, and the gold markets are about to throw the world back into the middle ages.

    • Mark J. Novitsky

      STUNNING and very detailed expose of across the board INSTITUTIONAL corruption. World bank, IMF, SEC, CFTC, OCC…DOJ. – THANKS for “Alternate” or “Pirate” media Patriots like Larry taking up what the captured corporate media is afraid to say…THE TRUTH!

  • SBD

    There is too much personal risk involved in being a whistle blower at that level. It can dominate years of ones’ life, and have deleterious effects on health and well being; not to mention future career opportunities.

    Even in my very limited experience of reporting the occasional run-of-the-mill securities reg violation, I have found that it can be demoralizing when such a report seems to get fast-tracked to the shredding department. (Perhaps the particular regs were of no interest in the current politics of enforcement).

    Until a better protocol is in place for the protection of whistle blowers, and greater accountability in follow-up is ensured, one has to ask whether it is gainful to act on principle or conscience.

    At the very least, one should have very thick skin, and have no expectation that equal justice will be served.

    • LD


      I wholeheartedly concur and address your points in my book. I wish it were set to be released even sooner but that’s publishing.

      • SBD

        Take consolation in that your points will be just as valid in 2014 (maybe consolation is a poor choice of words).

        • LD

          I get it and yes I am sure we will still be dealing with many of these issues then. Perhaps the timing of all this will actually help the book’s release. I am an eternal optimist.

          Thanks for the interest and moral support.

  • James

    how do you spell- epic unraveling? Hope, change, trust, transparency, no more cronyism…blah blah blah.

    You do great work Larry, short & to the point, very appreciated but do you have to keep using the word “navigate”? I’m a boater and it’s giving me a headache haaaaaaaaaaa

  • Mark Russert

    We need about at least a dozen of politicos similar to Elizabeth Warren to turn the SEC around. I don’t think she can do it on her own.

    There are too many tenured senators whose political careers rely on Wall Street funding and so will never flip on this issue. They will sit quietly while Warren fumes about the lack of criminal actions being brought against bankers. And then, eventually, they will vote against anything that upsets the status quo.

    Watch the fur (and money) fly if she should ever run for President.

  • dave

    Let’s just give everyone who thinks they deserve it a promotion!! Better yet let’s focus on the paranoid rantings of a “disgruntled” employee instead of the actual policies!

    • LD


      Did you read the complaint and especially the audit undertaken of Ms. Furey’s work?

      What do you make of the perfect score she received from that outside auditor?

      Any thoughts on the SEC officials abdicating their responsibility and flouting the law of the land?

      • dave

        I am not saying that I support/agree with the SEC’s policies. I am just saying that one employee not getting promoted and dragging every one of her supervisors name through the mud is irrelevant and just a distraction from the actual issues at hand.
        I just read the reviews of her audit and the reviews on her:
        -The article said that in 2010 her supervisor said she was a fantastic worker yet her eval is mostly 3/5s with a 2/5 in interpersonal relations.
        -Also at the end the author claims that “For all I know, Furey is just a disgruntled employee and her allegations are baseless. ”

        The entire thing has nothing to do with the SECs policies or their “law of the land” as you put it. Who would actually admit to their disgruntled employee that they were “arrogantly flouting the law”. That is like something out of a cheesy movie. Articles like this about office politics are entertaining but they are a distraction from the actual issues at hand.

        • LD


          I think you missed the part where the outside auditor gave her a perfect score for the level S-16 role. I think the score was a 1760 out of 1760. What about the fact that it seems highly likely her superiors changed her ratings “after” she pursued this case.

          Should we tell the Madoff investors that “not doing IM cases” had nothing to do with the law of the land?

          Are you familiar with the case of Gary Aguirre and his pursuit of insider trading at Pequot?

          I have been reading and writing about these sort of cases for the last 4 years. This is a LOT more than office politics.

          • dave

            Do you really think that her supervisors would go back and create a fraudulent document just to change a few numbers on her performance review? Would they outright tell her that they had been “lying to her for a year” about her promotion as she claims? I know that the SEC is inefficient and misguided but do you think all of these people would go out of their way to conspire to not promote this woman who is a good auditor but is lacking in the “interpersonal skills department?

            I am simply asking for my news to be a bit more evidence-based and a little lighter on the drama. I guess that’s why this is not in the wsj.

          • LD

            Yes….please read the link I provided there to the story about Gary Aguirre and you will get a better understanding of what the SEC is capable.

            I would caution you not to rely on the WSJ or any other periodical as the arbiter for what is credible news.

            Additionally, I hope you might choose to read my book, In Bed with Wall Street, when it is released in early 2014. Very little of the story told in that book was covered much if at all by the WSJ or other periodicals but I provide a whole lot of referenced sources to document my work.

  • Joe

    This is mind blowing.

    What is the Obama Administration and Congress doing about all this?

    Staring at corruption in the face and do nothing?


    Why aren’t the perpetrators of these frauds (crimes) prosecuted?

    Corporations pay heavy multi-$-million fines without admitting or denying guilt, while the individual perpetrators of the frauds (crimes) remain unscathed, most times unidentified, and are free to defraud or commit more crimes!

    When are our politicians and courts going to realize that this “modus operandi” is not going to fix the system?

    The courts and politicians need to punish the individual perpetrators of the frauds and crimes to prevent a re-occurrence of these frauds and crimes. This will have a two pronged preventive measures approach:

    1- The individual perpetrators will be unable to commit more fraud or crimes because they will be in jail.

    2- Seeing that the individual perpetrators are in jail will serve as a deterrent to other white collar criminals from committing similar crimes.

  • Bill

    I’ve said before a solution would be to appoint as head of the SEC a plaintiffs securities class action lawyer, i. e. somebody not beholden to Wall St. such as Mary Shapiro or Harvey Pitt. But, of course, the Wall St. titans would never stand for that. Even if such a miracle occurred, of course, a true guardian of the public interest would be confronted with the Gordian knot of deadwood, incompetence and conflict of interest that currently defines the SEC.

    • LD


      There is a very real cost connected to the ineptitude displayed by the likes of the individuals at the IRS and the SEC.

      How is that cost defined?

      An ongoing lack of meaningful trust and confidence in our government.

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