The SEC's Biggest Whistleblower Blunders (PHOTOS)

How did they not hear about this sooner? That's the question burned investors were asking the SEC in December 2008 when regulators charged Bernie Madoff with securities fraud for a multi-billion dollar Ponzi scheme he'd been running for decades.

Turns out the SEC did hear about it--more than six times. But when whistleblowers sounded off, the agency turned a deaf ear.

A 2009 report released by the SEC Inspector General reveals that whistleblowers filed complaints involving Madoff as early as 1992. Over the next 16 years before Madoff confessed in 2008, the SEC received six "substantive complaints that raised significant red flags." But examiners never conducted a "thorough investigation" of Madoff's operations and they rejected additional evidence from whistleblowers like hedge-fund manager Harry Markopolous.

Markopolous is just one of a number of whistleblowers who in recent years has tried to alert the SEC of potential wrongdoing, only to be ignored or misunderstood.

And the number may be dwindling. Besides book-deals and obscure Person of the Year awards, tipsters have little incentive to come forward. The SEC's whistleblower "bounty" program hasn't offered much additional incentive. Since its creation in 1989, the little known program has made reward payments to only five claimants totaling $159,537.

A new report by the SEC Inspector General recommends that its whistleblower program be overhauled. In the meantime, wet your whistle on our list of the SEC's Biggest Whistleblower Blunders:

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George Demos, Peter Sivere & J.P. Morgan Chase

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Peter Sivere, a former JPMorgan compliance officer, provided SEC investigators with an internal e-mail he came across that showed the bank was illegally giving hundreds of millions of dollars in credit to a firm "in the business of day trading mutual funds."  One of the recipients of Sivere's tip, an SEC lawyer named George Demos, passed along Sivere's warning to JPMorgan's lawyers, violating SEC confidentiality rules.  But the SEC took no disciplinary action against Demos, who is now running for Congress in New York. Sivere was fired by J.P. Morgan for seeking "payment from the SEC to provide documents and information to them outside of the normal scope of their investigation," according to a letter from J.P. Morgan cited in a Washington Post report.

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Peter Sivere, a former JPMorgan compliance officer, provided SEC investigators with an internal e-mail he came across that showed the bank was illegally giving hundreds of millions of dollars in credit to a firm "in the business of day trading mutual funds."  One of the recipients of Sivere's tip, an SEC lawyer named George Demos, passed along Sivere's warning to JPMorgan's lawyers, violating SEC confidentiality rules.  But the SEC took no disciplinary action against Demos, who is now running for Congress in New York. Sivere was fired by J.P. Morgan for seeking "payment from the SEC to provide documents and information to them outside of the normal scope of their investigation," according to a letter from J.P. Morgan cited in a Washington Post report.

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Biggest SEC Whistleblower Blunders

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Comments

[tacevad]

09:35 AM on 04/16/2010

I for one do not lay all the blame on Bush or even just Republicans.Democratic legislation shares the blame The problems have been mounting for 30 years, Bush adm. just accelerated the process and put it on steroids.
The solution has been proven, FDR knew it and it worked very well for decades.Tight regulation and oversight, reinstate Glass -Steagal (or a resonable facsimile) , clean house of political appointees (and the moles left behind)
Will this be done? probably not until there is an actual Great Depression to prompt it, mores the pity.

[Lake Saganaga]

05:59 PM on 04/15/2010

Please check out the interview of Amy Goodman with UBS whistleblower's attorney. The guy is in prison while the tax dodgers have got a chance to come clean and pay penalty. This is outrageous. sign the petition for the whistleblower's pardon here :

http://capwiz.com/whistleblowers/issues/alert/?alertid=14933501

[msjimmied]

11:12 PM on 04/15/2010

Just when you think we've hit bottom, it gets worse...what is wrong with the regulators? How are we supposed to respect the law, when there is no justice? This is a particularly ugly story. I suggest everyone reads it...

http://www.democracynow.org/2010/4/15/ubs

[olddognewtrick]

03:17 PM on 04/15/2010

I think it might better be characterized as: IGNORED!

[Nooneyouknow]

12:44 PM on 04/15/2010

They're not blunders, they're features. SEC operates to the benefit of the banksters, not the nation.

[patjenks]

12:24 PM on 04/15/2010

The best way to "blow the whistle" on corrupt bosses is via anonymous sites like eBossWatch http://www.ebosswatch.com

[NevaforLeadership]

11:02 AM on 04/15/2010

Thanks for the slide show. Very telling when we see SEC incompetence highlighted in a slide show. It takes a lot of guts to go against the herd as a whistle blower. We should commend them.

[Kevin Atlanta]

09:45 AM on 04/15/2010

The Nation can't be bothered to try the War Criminals Bush/ Cheney/ Rumsfeld but we expect the Government to charge and try the Corporate Communists who own them? I want some of what you've been smoking.
Audit and End the FED.
Charge the Wall Street and Banksters with the crime of the century and restore American's fail in the judicial system.
Socialize the loss and Privatize the profits is exactly what this scam was all about and they are setting up for round 2.

[NevaforLeadership]

10:57 AM on 04/15/2010

To attract people to a cause, it is important to be credible.

No matter how much you would like people to believe it, Bush, Cheney and Rumsfeld were not dictators. It was Congress -- remember the house and senate made up of both Republicans and Democrats -- who sent the US to war in Iraq.

Perhaps you could let us know exactly what crime and which specific bankers -- I am not talking about risk -- that is not a crime -- I am talking about specific defined crimes. Perhaps you could also let us know how one charges Wall Street? Define Wall Street for us. Is it large corporations who pay bloated executive salaries? Is it the bank where you keep your money? Is it the fund that invests your pension/other savings? Is it the traders who are on the hook for billions each day and watch over your currency? Is it the hedge fund managers who risked too much but didn't commit any crime?

Socialize the loss and privatize the profits. I am interested to know how you would have averted a global banking meltdown. As ALL western leaders -- liberal and conservative -- made a judgement to bailout their failed institutions to avert a global meltdown, it is interesting to find someone who has a better solution than the experts. But you have to tell us.

[blueskybigstar]

04:00 AM on 04/15/2010

These crimes are the beginning of the iceberg and often involve other crimes like drug smuggling. At last resort they would like for you to think of them as incompetent rather than having operatives who have infiltrated all levels of media, justice, and politics in order to cover up their crimes.

[PhilipTaylor]

03:18 AM on 04/15/2010

IGNORED HEROS OF THE SCAMS: MADOFF TO JPM!

#1. SEC ignored Harry Markopolos who BUILT A CASE AGAINST Madoff’s $50+Billion Ponzi scheme.

#2 SEC ignored Leyla Basagoitia in 2003 who warned of the $8 Billion Sir Allen Stanford of his PONZI SCAM! SEC forced he to pay Stanford $107,782 in damages.

#3 SEC ignored Brad Birkenfeld in 2007 who warned of USB offshore tax shelters the Swiss bank was using to help wealthy Americans evade taxes. He cooperating with the IRS, SEC, and DOJ appearing before the Senate and Birkenfeld was arrested in June 2008. SADLY the IRS fined UBS $780 Million but has FAILED to PROSECUTE the 19,000 cases of tax evasion!

#4 SEC ignored David Einhorn detailed EVIDENCE of Allied World Capital’s FRAUD. SEC ended up a PRIME Topic in his book “Fooling Some of the People All of the Time.”

#5 SEC ignored Ex-Moody's executive Eric Kolchinsky in Sept 2009 warning Moody's was violating securities law by assigning inflated investment grades to mortgage-Derivatives. Ultimately, he had to go to Congress after SEC ignored and delayed.

#6 SEC ignored Peter Sivere, former JPM officer, internal e-mails showing JPM was illegally giving $Hundreds of Millions in credit to a firm "in the business of day trading mutual funds." SEC lawyer, Demos now running for Congress, passed his warnings to JPM's lawyers, violating SEC confidentiality rules. Sivere was fired by JPM!

[jcaunter]

03:08 AM on 04/15/2010

IT'S great that you are willing to showcase the failures of the past HP, but why aren't you showcasing the very current "blunders" the Obama Administration and its regulator agencies are committing by ignoring whistle blowers right now, as I write. Are too many powerful interests telling you to keep it quiet HP?

http://jessescrossroadscafe.blogspot.com/2010/03/bombshell-whistleblower-steps-forward.html

I guess when this scandal blows open, the whole economy is going to go bust. So Obama's probably just trying to keep it quiet until we recover enough to handle the next big Ponzi scheme exposure. Yeah, that's probably it.

Good thing you folks in the media are being so cooperative with him. Wouldn't want this being exposed too early eh?

[Nooneyouknow]

12:41 PM on 04/15/2010

I've been wondering when this story would start leaking into the mainstream. I've only started hearing about it myself, but it some people are making it sound like economic armageddon is on the way.

[Martskers]

01:35 AM on 04/15/2010

You're right to be concerned about Mary Schapiro. Remember, she was the head of the NASD (as it was known then; now known as FINRA) which had members of the Madoff family in influential positions on its board. That's why Markopolous, when asked why he didn't take his concerns to the NASD, answered that they were corrupt.

The NASD knew about Madoff's fraud for YEARS because they were examining the broker-dealerships he ran that were accomplishing the scheme, but never did anything about them. FINRA is supposedly the first line of defense in the regulation/oversight of Wall Street, but since it is a captive of Wall Street, it is totally ineffectual. Worse, although it's supposed to look out for customers' interests in their dealings with brokerage firms, it insteads relegates them to a system of mandatory arbitration of their complaints against those firms, which is stacked against the customer.

And yet, it is the head of this corrupt and ineffectual organization (Ms. Schapiro) Obama appointed to be the head of the SEC. Get it?

[decsatsv]

10:27 PM on 04/14/2010

"THANK YOU BUSH FOR REDUCING THE SEC DOWN TO A SKELETON CREW."

Rubin, Summers, Geithner ... "Clintonistas" ALL and now 0-Bama-nauts... get a clue will you? They are all corrupt; to paraphrase Dick Durbin (D:IL) : The Senate is frankly bought and paid for."

[Tom95134]

09:22 PM on 04/14/2010

This list of whistle blowers missed the one person that could have stopped the games Wall Street was playing cold, Brooksley Born. From August 26, 1996 to June 1, 1999, Brooksley Born was chairperson of the Commodity Futures Trading Commission (CFTC), the federal agency which oversees the futures and commodity options markets. During her tenure on the CFTC, Born lobbied Congress and the President to give the CFTC oversight of off-exchange markets for derivatives in addition to its role with respect to exchange-traded derivatives,[3] but her warnings were opposed by other regulators. When she attempted to issue regulations that were within her agency's power and would have placed sever restrictions on the trading of derivatives the people that had the President's and Congress's ear, i.e., Greenspan, Summers, Berneke, when to Congress and had the power stripped from the CTFC.

The full story is a Frontline report and can be watched at: http://www.pbs.org/wgbh/pages/frontline/warning/

[norkas]

09:56 PM on 04/14/2010

PLease understand New York City is the multi billion cover up capitol of Americas fraud.

There is another multi billion dollar fraud the feds in NYC have covered up and consumers still have no clue they have been bilked out of billions and money laundry was involved in the millions.

Never count on any protection from authorities on major billion dollar frauds in NYC because cover ups are a on going part of life and reality in NYC.

Want to change things never bank a penny in NYC or investment make sure when you purchase stock no business in NYC profits.

Only when people rebel will anything change in NYC where the people are great but law sucks in billion dollar frauds

[dieselis]

10:06 PM on 04/14/2010

Someone posted this before seems the whole congress and Clinton Administration sanctioned the deregulation and the gutting of Ms.Bornsley's department when she sought to put an end to the whole fiasco. Present day Treasury secretary was in the mix also. The FED says jump and all of legislative and executive branches of government say. How high? Their one crafty bunch and/or were just idiots its infigurible. Just like the word.

[Lynnet6]

06:48 PM on 04/14/2010

THANK YOU BUSH FOR REDUCING THE SEC DOWN TO A SKELETON CREW.

[Lynnet6]

06:46 PM on 04/14/2010

THANK YOU PHIL GRAMM!!

[decsatsv]

11:28 PM on 04/17/2010

You forgot Larry Summers, Robert Rubin and Tim Geitner didn't you? Oh, and Corpro-Bama, the "reformer" who appointed them all....