FINRA Whistleblowers

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Mar 9, 2009 4:57 pm

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An irreverent Wall Street Blog
by Bill Singer
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Silencing the Whistleblower?
Written: March 9, 2009



By Bill Singer


http://RRBDLaw.com


http://BrokeAndBroker.com


On Thursday March 5, 2009, FINRA issued a press release entitled FINRA Announces Creation of "Office of the Whistleblower": Dedicated Team to Handle High-Risk TipsOn that same day, I published an open letter to FINRA (Richard Ketchum, Stephen Luparello, and Cameron Funkhouser) seeking a long overdue and oft postponed meeting (by FINRA) for the purpose of raising the FINRA Dissident/Reform agenda with our self-regulator.  While the two events were unconnected, they now have become eerily so.


I first wrote about the issue of disregarded Whistleblowers in January 2004 in "Whistleblowers Save Your Breath" (Registered Rep. Magazine).  Much of what I forewarned about some five years ago, was more recently attested to in lurid detail by Harry Markopolos's chilling tale of the failure of regulators to give credence to his whistleblowing about Bernard Madoff.  Pointedly, as Markopolos was quoted in the Associated Press story Lawmaker says SEC hindering House's Madoff probe:



Because of the SEC's inaction, "I became fearful for the safety of my family," Markopolos said.


"The SEC is ... captive to the industry it regulates and is afraid" to bring big cases against prominent individuals, Markopolos said. The agency "roars like a lion and bites like a flea" and "is busy protecting the big financial predators from investors."


While the SEC is incompetent, the securities industry's self-policing organization, the Financial Industry Regulatory Authority, is "very corrupt," Markopolos charged. That organization was headed until December by Mary Schapiro, President Barack Obama's new SEC chief.


In FINRA's March 5th Whistleblower release, we are told that Senior Vice President Cameron Funhouser has been appointed to head the new Office of the Whistleblower.  We are further advised that



One of the important lessons learned from the recent scandals is the need for regulators to recognize and react to regulatory intelligence offered by whistleblowers," said Stephen Luparello, FINRA's Interim CEO. "We want to encourage individuals with evidence of, or material information about, potentially illegal or unethical activity to come forward. This new initiative will ensure that individuals with significant information will reach senior staff, who can quickly assess the level of risk involved and make sure that each tip is properly evaluated. Those tips warranting additional review and investigation will be subject to an expedited regulatory response.


Let me offer the following observations and comments on FINRA's announcement.



Cam Funkhouser is as capable and decent a regulator as I have dealt with over the years. I like him and we have worked well together. I have contacted him with several whistleblower matters in the past and it is my understanding that some of those tips proved strong enough to make a case or help towards that effort. His hiring was a superb choice.

Having spoken with many whistleblowers during my career, I know that they fear  for the destruction of their careers or their personal safety.  Frequently, they voiced concern about whether they could trust the confidential nature of any proposed discussion with NASD, NYSE, or more recently FINRA.  When I was not able to provide such assurances (or not comfortable), I referred such callers to the FBI, the Department of Justice, or other state/federal regulators.  Having worked at two self-regulators, I have my own concerns as to whether so-called confidential information is handled accordingly, and whether industry participants (non regulators) are effectively shielded from learning about developing investigations.  

There is a wide chasm of distrust between the regulators and many of the regulated on Wall Street, and I have repeatedly sought to bridge that gap in past years to little avail.  In an effort to heal that divide, I reached out to FINRA on March 5th--coincidentally on a day when that self-regulatory organization belatedly responded to my prior calls for enhanced whistleblower responsiveness.  

In consideration of all of the above, I think that the industry could well find a way to work with Cam Funhouser, if only his superiors and colleagues at FINRA would respond to the overture of the Dissident/Reform Movement.  However, despite my confidence in Cam, under no circumstances will I refer any whistleblowers to FINRA until such time as I see  proof that the regulator's fine words in its press releases are truly backed up by a sincere commitment. 


Until such time as I get a response to my email to FINRA, I am done referring cases to FINRA and will not direct any callers to that regulator--I will refer them elsewhere. For now, I urge all to take heed of Harry Markopolos' opinions.