SEC Whistleblower Incentives, Good for enforcement? Bad for Business?

9 11 2010

The SEC is currently debating whistleblower incentives.  Under the program, an employee who contacts the SEC concerning possible violations may receive from between 10 and 30 percent of the judgments against their corporation.  The business community has raised concerns about the incentives stating that such incentives are bad for the business environment.  First it creates a defacto company versus employee atmosphere to a scale not seen before.  Previous whistle blower provisions mostly centered on the employee’s job security, in that they were essentially termination proof for one year after reporting potential violations.  By giving employees a monetary incentive to report against their employer, the SEC will have created a hostile work environment where there would be a constant friction between the two, especially if the employee starts to look for violations where there are likely none.   Secondly, in response to firms roles in the recent economic recession, most financial institutions have enacted internal policies and channels for employees to report possible violations.  The new incentives would encourage employees to by-pass the existing channels in favor of reporting directly to the SEC.

SEC Chair Mary Shapiro addressed these issues.  From the Wall Street Journal Online:

After describing the specifics of the program, including how individuals would report fraud and how the SEC would evaluate the merit of such claims, she assured the group that the SEC was keen to “reduce the chance that employees unnecessarily bypass internal compliance programs that their own companies may have established” and the “goal is not to, in any way, reduce the effectiveness of a company’s existing compliance, legal, audit and similar internal processes.”

However, the end result could be that the SEC may be inundated with complaints from disgruntled employees looking to profit against their employers.   In this environment of fear and hostility towards business, small and large firms may have to end up spending much of capitol, time and opportunity, fighting these allegations, which overall, is a huge negative for a business environment fighting to emerge from recession.  The SEC has posted a full copy of the proposed rules for implemeting the whistleblower provisions.





SEC worst favored Government Agency

8 06 2009

People are frustrated with the government.   Bailout money, increased national debt, tax hikes, wire-tapping, torture, all give people a reason to be upset at the government.  Of all the government agencies, which should be the worst rated, FBI? CIA, IRS?  No, among all the agencies in the alphabet soup of government agencies, the letters  SEC draw the most ire.  An interesting article on Investment News‘s website:

Among six large government agencies, the Securities and Exchange Commission ranked dead last on the likeability scale with the public, with even the Internal Revenue Service coming in ahead….

Fifty-five percent of the respondents in the telephone survey had an unfavorable view of the SEC, compared to 43% for the IRS, according to the survey, which was conducted in April for Persuasion Strategies, a service of Denver law firm Holland & Hart LLP.

Why the SEC?  Well they are damned if they do, and they are damned if they don’t.  Lack of government oversight has been largely blamed for the nation’s current economic crisis.  This is no more true than in the regulation of financial markets.  On the other hand, others are lead to believe that government interference in markets only have the affect of prolonging economic problems.   To top it all off, the SEC has received a lot of bad press lately, summed up in one word, Madoff.  Of course Madoff is not the only source of SEC problems.  The silver lining in the status of the SEC is that, as the article points out, at least the people under investigation by the SEC are less popular than the SEC itself.





Cox v. Shapiro SEC Chairs

1 06 2009

Today’s post will be very short, as I have a loaded day today.  The Washington Post today printed an article about enforcement problems that occured during Christopher Cox’s tenure of the Securities Exchange Commission, and how the new Chair, Mary Shapiro, must deal with them.  I do not dispute problems that occurred during the Cox years, and I do agree that Shapiro inherited a mess.  There are some things I’d like to ask.   How much of a role did the securities market play in the economic situation we are now facing?  Would more regulation solve the problems, or exhaserbate them?

From the Washington Post:

During Cox’s tenure, investigators who wanted to subpoena documents or compel interviews faced an increasingly cumbersome process to win the commission’s approval for each case, according to current and former agency officials….

This is the legacy Mary Schapiro inherited when she replaced Cox as chairman this year. Among her first acts, Schapiro freed enforcement officials from getting commission approval before negotiating settlements with companies and established an accelerated process for authorizing subpoenas and depositions. She speaks frequently of taking the “handcuffs” off of the enforcement division.

I invite you to leave comments.  This blog is not my soapbox for me leaving my ideas.  Let me, and everyone else who reads this, know what you think.





SEC Chairman Cox resigns

22 01 2009

Wait one second?  It is a new administration, aren’t the people from the previous administration supposed to resign?

With cabinet agencies, yes, with independant administrative agencies like the SEC, no. While commissioners of the Securities and Exchange Commission are appointed by the President, they do not serve “at the pleasure of the President”.  The SEC consists of five commissioners appointed by the President to five year terms.  The terms are staggered so that one commissioner is appointed every year.  It is rare, however, for a commissioner to serve a full five year term on the commission. To maintain the independance of the agency, no more than three commissioners may be of the same political party.  Cox’s resignation does make room for President Obama to appoint a new chairman to finish Cox’s term.

What will Cox’s legacy be?

Undoubtedly not a good one.  His chairmanship oversaw the largest economic collapse since after World War II.  The SEC failed to see the signs of the banking crisis that errupted late last year, they also have been accused of having lax oversite in other areas.   The prime example of lack of oversite is SEC’s inability to uncover Bernie Madoff scandal, especially given the size and scope of the damage from the scandal.   In more conservative circles he will also be vilified as an ardent defender  and enforcer of Sarbanes-Oxley, a law which is often criticized as being drawn and past in the face of the Enron collapse, as ineffective in its enforcement, and as too burdensome on law abiding businesses.

The new SEC chairman.

President Obama has designated Mary Shapiro as his choice to fill in the SEC chair position.  She will be the first woman appointed to chair the SEC.  She has a long history of working with the SEC, having been appointed to a term as a commissioner in 1988 by President Reagan, and as acting chairman by President Clinton in 1994.  Undoubtedly she will have a lot of work to do in trying to fix an agency that has been under heavy scrutiny for almost a decade.