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The SEC's Biggest Whistleblower Blunders (PHOTOS)

Huffington Post     First Posted: 06/14/10 06:12 AM ET   Updated: 05/25/11 05:05 PM ET

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:

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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