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Who is More Effective, Wikileaks or SEC?

Posted by Larry Doyle on January 31, 2011 10:13 PM |

If you were a senior accountant at a firm and suspected senior officials of perpetrating a fraud, would you run the risk of professional suicide and bring the information to the SEC or maintain cover and contact Wikileaks? What do you think? Do the right thing and hope you are protected or put your trust in the great equalizer known as Wikileaks?

Let’s not lose faith in Uncle Sam, right? Go straight to Washington and let them do their thing protecting America, yes? Well, maybe not.

Let’s check in with somebody who went to Washington while blowing the whistle on one of the greatest frauds in the history of our nation. Of whom do I speak? Sherron Watkins. Sherron who? Remember Enron?

Yes, Sherron blew the whistle on the boys at Enron a decade ago. What would she do now? Would she still call the SEC, even under their newly enhanced leadership? Great question. The Center for Public Integrity highlights that Sherron would take a different tact if she found herself in the same position today. CPI writes, Wikileaks More Effective Than SEC, Says Enron Whistleblower:

A former Enron accountant who blew the whistle on fraud at the energy giant says she doesn’t trust (LD’s edit: there’s that trust thing again) the Securities and Exchange Commission to handle tips from company insiders, even though the agency plans to offer a generous new bounty for information about fraud.

“I don’t think the SEC’s culture is one that will make this effective one iota,” said Sherron Watkins, a one-time vice president at Enron, referring to expanded protections for whistleblowers included in the Dodd-Frank financial reform law.

If she was in the same situation today as 10 years ago, when Watkins approached government authorities about accounting fraud at Enron, she would probably instead take her information to an organization like WikiLeaks, Watkins said.

In August 2001, Watkins warned then-Enron chief executive Ken Lay that Enron “might implode in a wave of accounting scandals.” After she was ignored, she told her story to government investigators. But by then it was too late and Enron had begun collapsing under the weight of allegations of massive fraud at the Houston-based energy giant.

Watkins said that she did not believe that the SEC is capable of evaluating and acting on valid tips that involve complicated financial maneuverings. The fallout from ignoring whistleblower Harry Markopoulos, who repeatedly warned the SEC of Bernie Madoff’s multi-billion-dollar Ponzi scheme, but was ignored, still haunts the agency, Watkins said.

“The perception is that you wouldn’t be listened to” by the SEC, she said during a panel discussion about whistleblowers held by the New York State Society of Public Accountants.

Under the Dodd-Frank law, company employees who provide information about suspected fraud to the SEC will get a bounty if the tip leads to a payout of more than $1 million. Whistleblowers are then entitled to 10 to 30 percent of the payout.

The SEC received hundreds of e-mails and letters after publishing its proposed regulations for whistleblowers. The comment period ended in mid-December and the agency has yet to finalize the rules.

Since the Madoff scandal, the SEC has hired a new enforcement director, Robert Khuzami, and eliminated a layer of management. The agency has also adopted a new mechanism to evaluate the 60,000 or more tips it gets each year.

Former SEC commissioner Paul Atkins, also on the panel, said that despite reforms at the SEC, “the new folks haven’t risen to the challenge of problems presented by Madoff and others.”

Atkins also warned of unintended consequences of the new law. For example, he said, an employee who detects a fraud of less than $1 million might keep silent about it until the fraud grows to the size where he or she would qualify for a monetary award.

An SEC spokesman was not immediately available for comment.

Marion Koenigs, a deputy director for enforcement at the Public Company Accounting Oversight Board, was the third member of the panel. “Doing the right thing is not easy,” she said of the difficult decisions faced by would-be whistleblowers, in response to some of the concerns raised by her fellow panelists.

Powerful message put forth by Ms. Watkins. I commend her for having the courage to speak her mind. Why might she choose to go to Wikileaks? Think it might have something to do with the message embedded in my recent commentary, Which US Senator Blocked the Whistleblower Protection Enhancement Act?

In regard to ‘”doing the right thing is not easy,” if the crowd on Capitol Hill and in the financial regulatory system had the courage to stand their ground and protect our citizens instead of cowering in the face of the pressure applied by the industry, then “doing the right thing would be a lot easier” and our nation and the industry would be a lot better off in the process.

What would you do?

…oh, and thank you Wikileaks!!

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own and not those of Greenwich Investment Management. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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