Bureaucracy that smacks of willful ignorance — that's what one would-be tipster (and client of mine) encountered when he tried to anonymously notify regulators of trouble at his broker/dealer.
As an attorney who has been practicing securities law for over two decades, I can attest that this experience is all too common.
Given the frequency with which regulators are unearthing impropriety at financial firms, it's a little hard to believe they're inhospitable to tipsters. But as the following story illustrates, the process of whistleblowing is one that frustrates potential do-gooders at every turn — to the point that it's reasonable to wonder whether regulators want to hear from these people at all.
The Inexperienced Informant
A few weeks back, I got a call from a prospective client in search of guidance. He had uncovered an impropriety at his employer, a broker/dealer, and was looking for help in getting the information to someone who could act upon it.
There was one catch: The tip had to be completely anonymous, because the man had a family and intensely feared losing his job. (Turns out his fears are well-placed. Regulators' promises of confidentiality are often violated. In some cases, regulators try to “flip” a source and force him to testify. In other cases, a whistleblower seeking to trade information for immunity from prosecution gets charged with a related crime. Finally, there is the problem of information leaks to the media and other private parties.)
Given these possibilities, I tried to honor the whistleblower's request for anonymity while probing for more information.
“What is it you uncovered?” I asked.
“I don't want to discuss it over the telephone,” he answered.
“Do you want to meet me?” I offered.
“No, not now,” he said.
“If you're afraid for yourself or family, I can arrange to have a prosecutor or the FBI or someone like that meet you.”
“No, I'm not ready for that. Not yet.”
Puzzled, I explained that if he couldn't give me more to go on, then I was stymied. He then gave me an account of his attempts to alert the authorities to the improprieties at his company.
First, he said, he dialed the New York office of the NASD. After working his way through the pre-programmed phone message, he reached the “Examiner of the Day,” a regulator assigned to field phone calls like his. He told the examiner he had a tip, and the examiner directed him to the NASD Web site for a complaint form. “No,” the would-be informant explained, “I can't do that. My company monitors our usage of e-mails and Internet sites, and anyway I need to remain anonymous. Can't you just take some notes?” He was told that NASD policy requires a written complaint.
Undaunted, he decided to call the New York State Attorney General — Eliot Spitzer's office. Here he encountered much the same thing, a series of taped messages instructing him to send in a written complaint. Finally, he called the New York office of the SEC. The telephone operator gave him two phone numbers, both of which seemed promising, but unfortunately no one picked up either line. Voice mail greetings instructed the caller to leave a name and number — something he was reluctant to do for fear of losing anonymity.
Strangling Red Tape
It's clear that bureaucracy is the main culprit in this saga. But given the recriminations we hear every day — “Why didn't Wall Street uncover these abuses on its own? Who's watching the store?” — it would stand to reason that the organizations charged with enforcing industry rules would make a priority of hearing from the people best equipped to detail the industry's problems.
To be sure, not all whistleblowers and confidential informants (or CIs, as criminal prosecutors call them) are motivated by high ideals. Sometimes they're bartering information in exchange for some relief from prosecution, fines or suspensions.
However, in my experience, a significant number of would-be informers are motivated by nothing more than a desire to do the right thing. They see a wrong and they want to right it, but the system makes that all but impossible.
And we wonder how the industry has arrived at its current state.
Writer's BIO:
Bill Singer is a partner with the law firm of Gusrae, Kaplan & Bruno. rrbdlaw.com
