whistleblowers

The Securities and Exchange Commission said Monday that it expects to pay more than $30 million in an award under its whistleblower program, more than double the agency’s previous high for a payout under the plan. The SEC didn’t name the whistleblower in question, but the regulator did say that it will be the fourth award given to an informant living in a foreign country. “This award of more than $30 million shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice,” Sean McKessy, chief of the SEC’s whistleblower office, said in a news release. “Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.” [WSJ]

On Monday, Paradigm Capital Management became the first investment fund to pay a fine for retaliating against an employee who reported his firm’s misdeeds to the S.E.C. The hedge fund, which is based in Albany, N.Y., and manages $1.5 billion of client money, agreed to pay $2.2 million to settle the civil charges…Mr. Nordgaard was head trader at Paradigm Capital from 2009 to August 2012, when his contract was terminated. Mr. Nordgaard, who filed a lawsuit against the firm in 2012, said that shortly after he told his employer that he had reported trading violations, Paradigm Capital “embarked on a campaign of retaliation” against him. Days later, Mr. Nordgaard was removed from his desk and stripped of his trading privileges, according to the lawsuit. He was then assigned to “an isolated location to do low-level compliance work”. [Dealbook]

As many of you know, in 2010, the SEC created a whistleblower program wherein a person who “comes forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered” can collect a nice little payout (awards range from 10-30% of the total collected). So you can’t really blamed the unnamed man or woman who submitted 196 applications1 for awards over the last 3.5 years in an attempt to win a nice li’l finder’s fee for him/herself, but the SEC can decide to make it official policy that any future cases submitted by this person shall be used for kindling, which it did last month. Read more »

  • 20 Sep 2013 at 2:51 PM

UBS Whistleblower (Allegedly!) Likes His Drink

Remember Bradley Birkenfeld? Former UBS employee who scored himself a $104 million bonus from the IRS for single-handedly making the government’s case against UBS re: tax cheats, which resulted in the US scoring $780 million from the Swiss bank and in turn nearly $5 billion when you count the additional Americans who were inspired to “voluntarily disclose offshore accounts”? But not before he was sentenced to 40 months at Schuylkill Federal Correctional Institution, 32 of which he did before getting the rest lobbed off for good behavior? He’s been celebrating for the past year, and recently celebrating a little too much. Read more »

My favorite financial news story of 2013 so far might be the Reuters story last Friday about how NYSE and Nasdaq each listed more IPOs than the other during the first quarter. A normal human might find that odd: listing an IPO is the sort of thing that you tend to notice and keep a record of, so you could pretty easily just add up the IPOs you listed and compare. But to a banker, it’s obvious that everyone would claim, with some sort of semi-plausible justification, to be first in every league table. In fact the explanation is perfectly, almost paradigmatically natural: Nasdaq excludes REITs, spin-offs, and best efforts deals.1 I remember when I used to exclude REITs! Excluding REITs is, like, 20% of what a capital markets banker does.

A deep tension at the heart of the financial industry is that it attracts a lot of quantitative logical evidence-oriented people and then puts them to work in essentially sales roles, and a lot of what it sells is unsubstantiated mumbo-jumbo. You wrote your senior thesis on geometric Brownian motion in the prices of inflation-linked Peruvian bonds from 1954 to 1976? Great, go make a page telling clients why Bank X is so much better at underwriting commoditized debt deals than Bank Y. Or: your thesis took for granted the truth of the efficient markets hypothesis? Great, go market a hedge fund that charges 2 and 20 to beat the market. You have to be quantitative enough to manipulate the data to get it to say what you want (“This fee run is 0.2% higher if we exclude REITs” “Well, do that then”), but not so quantitative that you find the whole process revolting. It’s a hard line to walk, and it’s not surprising that Eric Ben-Artzi or Ajit Jain or the quant truthers at S&P end up disgruntled and either blowing whistles or writing regrettable emails.2

Does that explain Lisa Marie Vioni? I dunno, her economics degree came with a side of French, she became a hedge fund marketer, and she’s done it for over 20 years, so I’d have pegged her as pretty comfortable in the gray areas. But in January 2012 she went to work for Cerberus as an MD selling its RMBS Opportunities Fund, and in February 2013 they fired her, and now she’s suing them. She’s suing in part for gender discrimination, which is hard to evaluate from her complaint but sure, maybe.3

But she’s also suing as a Dodd-Frank whistleblower, because she complained about what she thought were misleading marketing materials and was more or less told to go pound sand. And those accusations go like this: Read more »

  • 15 Nov 2012 at 6:27 PM

Bonus Watch ’12: SEC Whistleblowers

The Securities and Exchange Commission said Thursday it received more than 3,000 tips in the past fiscal year. The SEC said the tips — 3,001 in all — came from all 50 states, Washington, D.C., Puerto Rico and from 49 countries. It announced the findings in a report required by the Dodd-Frank Act on the activity of the SEC’s whistleblower office, which opened its doors in August last year…Under the program created by the Dodd-Frank Act, whistleblowers can receive a 10% to 30% reward if they provide original information that leads to a successful enforcement case netting a penalty of $1 million or more. The SEC issued its first reward under the program on Aug. 21 to an informant who didn’t want to be identified. The whistleblower received $50,000, or 30% of the $150,000 thus far reclaimed out of the multimillion-dollar fraud the person prevented, the SEC said at the time. [WSJ]

Last week, we discussed the whistleblower payout awarded to Bradley Birkenfeld, a former UBS employee who single-handedly made the government’s case against the Swiss bank re: tax evasion, scoring the US between $780 million and $5 billion, depending on how much credit you want to give him. Earlier in the month, Birkenfeld secured a $104 million bonus from the IRS for his assistance, though only after a lot of hoop jumping, nearly three years in a federal prison, and several months in a halfway house, prompting us to wonder how much money, if any, it would take to get you to blow the whistle on some colleagues playing it fast and loose with the law,* if you would do time for it, and, if so, how much? Today brings one more issue to consider, should you be seriously considering teaching your coworkers a lesson they’ll never forget, which is: are you will to get your face rearranged and/or have your ear stapled to your spacebar?** Read more »