Financial Regulatory Forum

INTERVIEW: Whistleblowing is a duty if internal calls unheeded, U.S. bailout overseer tells compliance officers

By Stuart Gittleman

NEW YORK, July 31 (Thomson Reuters Accelus) - Compliance officers have a duty to become whistleblowers if their concerns are not heeded internally, Neil Barofsky, the watchdog over the U.S. financial crisis bailout program, told Compliance Complete in an interview.

Exposing wrongdoing is the only way to eradicate a “cancer” of fraud that can endanger companies and the larger economy, said Barfosky, who also in the interview warned on dangers of a revolving door between financial regulators and Wall Street.

Barofsky was appointed Special Inspector General for the Troubled Asset Relief Program in the aftermath of the September 2008 financial crash by President George W. Bush and served from mid-December through March 2011, when he left to teach at New York University School of Law.

As SIGTARP, Barofsky and his colleagues were tasked with reporting on whether the relief program, or TARP, was using funds as Congress intended, and with preventing the misuse or theft of trillions of dollars of public funds.

Before coming to Washington D.C., Barofsky was a Manhattan federal prosecutor whose work resulted in the convictions of Columbian drug dealers, the men behind the Refco scam initial public offering, and mortgage fraudsters who preyed on homeowners who were desperately seeking to avoid foreclosure.

SEC’s new whistleblower website – ‘winning’ Dodd-Frank style

By John Sutton

Aug. 17  (Business Law Currents) – As the fabled story goes, almost a decade passed between the time that fraud investigator Harry Markopolos first submitted evidence of the Bernie Madoff Ponzi scheme to the SEC’s Boston office and his arrest in late 2008.

With the adoption of the new whistleblower program under Section 922 of the Dodd-Frank Act and the release of the program’s related website specifically designed for whistleblowers to provide tips, the SEC is now able to get serious about following up on whistleblower leads. (more…)

ANALYSIS-Madoff whistleblower tries new shield tactic in bank-fraud suits

19:09 03Feb11 -REFILE-ANALYSIS-Madoff whistleblower tries new shield tactic (Refiles to fix typo in headline) * Markopolos turns to Delaware law to protect whistleblowers * Markopolos boasts of more fraud cases “in pipeline” By Ross Kerber and Tom Hals BOSTON/WILMINGTON, Del., Feb 3 (Reuters) – Delaware touts itself as a business-friendly haven, but a new strategy by a well-known whistleblower takes the rules in an unexpected direction. Recent suits against major banks claiming they defrauded public pension funds were filed by Delaware partnerships tied to Harry Markopolos, an associate said. Markopolos is the Massachusetts fraud investigator best known for trying to tip authorities to Bernard Madoff’s massive Ponzi scheme. It is not unusual for companies to file suits seeking a share of damages that officials might recover in fraud cases. The twist is that by using Delaware entities that disclose few details about themselves, Markopolos has made it easier to shield the identities of the insiders who bring forward evidence of wrongdoing, said Patrick Burns, spokesman for Taxpayers Against Fraud, a Washington group Markopolos has worked with in the past. “This was something Harry figured out,” Burns said in an interview on the recent cases. “It’s to protect the anonymity of the whistleblowers who are still in their industries, and helped set up teams of whistleblowers who can work together.” Markopolos declined to comment via e-mail. Burns declined to discuss many more specifics. Another person who has worked with Markopolos, Los Angeles attorney Mark Labaton of Motley Rice, said the new partnerships also could be a way to protect whistleblowers from retaliation from companies whose fraud they are reporting, a concern Markopolos has expressed in the past. “That is something new and I think it reflects a certain amount of creative thinking,” Labaton said of the partnerships. Just how to protect the identity of whisteblowers has been a hot topic among like-minded attorneys in the past, he said. DELAWARE FILINGS The suits against the banks claim they overcharged public pension funds. They include one filed in Fairfax County, Virginia, circuit court by a Delaware partnership, FX Analytics, against Bank of New York Mellon Corp <BK.N>, in which Virginia Attorney General Kenneth Cuccinelli has intervened; and one unsealed in 2009 by then-California Attorney General Jerry Brown against State Street Corp <STT.N>, which states it was built on a suit first filed by another Delaware corporation Associates Against FX Insider Trading. Also, on Thursday Florida Attorney General Pam Bondi filed a motion to intervene in and unseal a case that FX Analytics had filed against Bank of New York Mellon. [ID:nN03280263] The two large custody banks deny wrongdoing. Neither partnership provided many details in filings, a common omission permitted by state rules. They were created in 2008 and 2009. The partnership strategy fleshes out some details that Markopolos has left vague in past interviews, and shows the growing power of investigators and attorneys to leverage laws such as the False Claims Act and state statutes. Broadly these allow individuals who bring forward evidence of fraud to share in money recovered by the government. Such cases are on the rise. Last fall a former GlaxoSmithKline PLC <GSK.L> employee was awarded about $96 million after reporting problems at a drug-making plant in Puerto Rico, believed to be a record recovery. Also, in a Jan. 24 letter to U.S. Sen. Charles Grassley of Iowa, officials noted the number of new Justice Department healthcare fraud investigations — often sparked by whistleblowers — had risen 10 percent in fiscal year 2010 from 2009, after rising 17 percent that year compared with 2008. It is not unusual for these suits to be brought by companies rather than individuals. Just on Tuesday, for instance, a Texas jury ordered a unit of Iceland’s Actavis to pay $170 million for overcharging the state’s Medicaid program, in a case first brought by the owners of Florida pharmacy Ven-a-Care, themselves a group of former healthcare workers. LEGAL SECRECY Ven-a-Care has been quite public about its role. Delaware laws allow partnerships like FX Analytics much secrecy, however, under a state effort to get companies to register themselves under its business-friendly laws. The state says it has attracted more than 50 percent of all U.S. publicly traded companies, including nearly two-thirds of the Fortune 500. Lately the lack of transparency has itself come under fire as potentially aiding tax fraud or terrorism. Michigan Sen. Carl Levin has criticized the state and Nevada for allowing businesses to set themselves up with “less information than is required to open a bank account or get a driver’s license,” as Levin told a Senate hearing in 2004. SHADOWY IMAGE Markopolos himself has cultivated a somewhat shadowy image, an approach he has said in interviews was needed to help protect employees rooting out fraud. Markopolos discussed some of his thinking in the book he published last spring, “No One Would Listen,” about his unsuccessful efforts to get securities regulators interested in Madoff years before his scheme blew up. In it Markopolos described how matters he unearthed became the basis of the fraud suit filed by California against State Street Corp. “I have many other cases in the pipeline,” Markopolos wrote. He added, “In fact I intend to be in this business until I can’t find any more financial or Medicare frauds — which makes me think I’m going to be in the whistleblower business for a long, long time.” (Reporting by Ross Kerber; additional reporting by Tom Hals), editing by Matthew Lewis) ((Ross.Kerber@ThomsonReuters.com; + 1 617-856-4341; Ross.Kerber.Reuters.com@Reuters.net)) Keywords: WHISTLEBLOWERS/MARKOPOLOS Thursday, 03 February 2011 19:09:44RTRS [nN03135825] {C}ENDS

Harry Markopolos, a former financial executive, testifies before a House Financial Services Subcommittee on "Assessing the Madoff Ponzi Scheme and Regulatory Failures" in Washington February 4, 2009. Markopolos, who tried to blow the whistle on Bernard Madoff, told Congress that securities regulators had ignored his repeated pleas for a thorough investigation of the accused swindler's alleged $50 billion fraud. REUTERS/Jason Reed By Ross Kerber and Tom Hals

BOSTON/WILMINGTON, Del., Feb 3 (Reuters) – Delaware touts itself as a business-friendly haven, but a new strategy by a well-known whistleblower to pursue bank-fraud suits takes the rules in an unexpected direction.

Recent suits against major banks claiming they defrauded public pension funds were filed by Delaware partnerships tied to Harry Markopolos, an associate said.

ANALYSIS-Companies could get caught in Asia as corruption rules tighten

By Rachel Armstrong

SINGAPORE, Jan 20 (Reuters) – Multinational firms trying to get a bigger piece of the Asia growth story face a rising risk of becoming embroiled in corruption scandals unless they enforce stricter compliance norms and new regulations.

The region may have moved centre stage in many companies’ growth strategies as developed economies struggle but firms are also scrutinising investment projects even more and stepping up due diligence before jumping into new joint ventures and M&A. (more…)

Can hedge funds double dip under Dodd-Frank whistleblower rules? (Westlaw Business)

By Jesse R. Morton

NEW YORK, Jan 6 (Westlaw Business) – Whistleblower provisions in Dodd-Frank may have handed hedge funds a golden opportunity and the SEC a unique challenge.

Funds have long conducted unique analyses that power their trading strategies and at times prompt quite public “revelations” of possible funny business. Think Greenlight Capital’s company-shaking revelations about Lehman Brothers in 2008 and Allied Capital in 2002.

Though the law remains unclear on this issue, its quite-intentional similarity to pre-existing approaches under the False Claims Act and the whistleblower program of the IRS may provide funds with a profitable two-fer. Though not necessarily the intent of Dodd-Frank’s enacters, one is left to wonder as to the role of shorts, touted (by shorts), as de-facto enforcement division of the SEC. (more…)

  •