wrongdoing

DealBook: Libor Case Energizes Gensler and the C.F.T.C.

August 13, 2012 by NewsMaker Leave a Comment

Peter W. Stevenson for The New York TimesGary Gensler, the chairman of the Commodity Futures Trading Commission, in his office in Washington.

Months after he arrived in Washington in 2009, Gary Gensler knew he had a big case.

Huddled around his assistant’s desk with a colleague, Mr. Gensler, then Wall Street’s newest regulator, listened to a taped telephone call of two Barclays employees discussing plans to report false interest rates. When the brief recording ended, Mr. Gensler realized the gravity of the wrongdoing.

“We need to make this case even more of a priority,” he told his colleague at the Commodity Futures Trading Commission, Stephen Obie, who already had been investigating Barclays for more than a year.

The Barclays case has now thrust Mr. Gensler — and his once-obscure agency — into the spotlight.

In June, the commission reached a settlement with Barclays in the rate-manipulation case, which produced the largest fine in the agency’s nearly 40-year history. The deal is expected to be the first of many, as Mr. Gensler’s team leads a global investigation into rate-rigging at more than a dozen big banks.

It is a new role for the agency, the industry’s smallest regulator. For years, it was viewed as the Rodney Dangerfield of the regulatory world, with a light touch and little respect.

When the agency first opened the rate investigation in 2008, some banks dismissed the regulator, telling it to narrow the focus to a particular time period or trading desk. Barclays questioned whether the American regulator had the authority to examine a British bank, according to people with knowledge of the matter.

Now, Wall Street is taking the commission more seriously.

Along with the inquiry into rate manipulation, the agency is playing a central part in several prominent investigations, examining the blowup of MF Global and the multibillion-dollar trading loss at JPMorgan Chase. Mr. Gensler has also aggressively — some say obsessively — pushed the agency to adopt dozens of new rules under the Dodd-Frank law, the financial regulatory overhaul.

“The change is night and day,” said Representative Barney Frank, Democrat of Massachusetts, the co-author of the sweeping law that bears his name.

“It was a toothless agency,” he said, but when “Gary became chairman, he was very aggressive.”

The agency’s revival stems from the wave of new regulation. Dodd-Frank, passed in 2010, greatly expanded the responsibility of the agency, stretching its reach to the dark corners of the $300 trillion derivatives market. Before that, the agency oversaw the $40 trillion futures business.

Mr. Gensler has positioned himself as a chief advocate of the law, initially lobbying lawmakers to close loopholes and now overseeing the flurry of rule-making at his agency. After a long career at Goldman Sachs and a stint in the Wall Street-friendly Clinton administration, the job has given Mr. Gensler a shot at redemption.

But Mr. Gensler and his agency have faced a steep learning curve with the bureaucratic and political ways of Washington.

To win support from fellow regulators, Mr. Gensler has agreed to dial back some rules. And while the agency’s rule-writing has outpaced other financial regulators, the trading commission has missed multiple deadlines for completing the crackdown on derivatives, a central cause of the 2008 crisis.

Mr. Gensler has also drawn the ire of Congressional Republicans, who say his commission is overstepping its authority. Some bankers have taken aim at the agency, saying its rules threaten profits.

“No one likes their regulator right now, however good they are, and Gary is good,” said Eugene Ludwig, head of the Promontory Financial Group and a former bank regulator who knew Mr. Gensler from their days in the Clinton administration.

The new identity of the agency reflects the personal evolution of its leader.

A math whiz who grew up in a working-class Baltimore neighborhood, Mr. Gensler attended the Wharton School at the University of Pennsylvania. After an 18-year career at Goldman Sachs as a mergers and acquisitions banker and later an executive, he joined the Treasury Department.

At the time, the department oversaw the broad deregulation of the same markets Mr. Gensler now oversees. In 2009, some liberal lawmakers stalled Mr. Gensler’s nomination to the commission, fearing that he remained a banker at heart.

Mr. Gensler, a father of three daughters, agrees that he has yet to shake his penchant for deal-making. When negotiating over the wording of a rule, he still props up his socked feet on an employee’s desk, a habit common to bankers. His efforts now, however, are directed at reforming the industry that once made him millions.

“I think what we’re trying to do is bring common-sense rules of the road to this really important marketplace,” he said in an interview.

As Congress debated Dodd-Frank, Mr. Gensler was a ubiquitous presence on Capitol Hill, pressuring lawmakers to beef up the details. The day the law became final, he stayed past 4 a.m. with Blanche Lincoln, then a senator from Arkansas, putting the finishing touches on several provisions.

“I told him that Dodd-Frank was his baby because he labored with it for at least nine months,” said Michael Dunn, a former C.F.T.C. commissioner who works at Patton Boggs.

With the intensity of a longtime banker, Mr. Gensler has pushed his staff to finish the rules promptly. He is an avid reader of the “Dodd-Frank Progress Report,” from the law firm Davis Polk Wardwell, a publication that tracks rule-writing. Once, when he mistakenly thought the publication failed to count a C.F.T.C. rule, Mr. Gensler phoned a lawyer at the firm to request a correction.

A marathon runner and mountain climber, his fixation with speed has made him a brusque taskmaster at times.

Last year, when a small earthquake forced the agency to evacuate its offices, Mr. Gensler arranged a staff meeting at a cafe in the building’s lobby. The employees, he said, could not afford to lose an afternoon of work.

Despite his demanding pace, colleagues say he is quick to compromise. When Scott O’Malia, a Republican commissioner of the agency, urged Mr. Gensler to tweak a complex derivatives rule, they convened the so-called Meiwah summit, referring to the Chinese restaurant in Washington where they completed a deal.

Mr. Gensler has also built relationships with other agencies, as they collaborate on Dodd-Frank. Mr. Gensler was a mock senator when Mary L. Schapiro, the head of the Securities and Exchange Commission, prepared for her confirmation hearing. Ms. Schapiro once baked cupcakes for Mr. Gensler’s birthday.

“Together we can make this the most successful partnership in government,” she wrote in his copy of the Dodd-Frank law.

Even so, some industry players paint Mr. Gensler as a stubborn negotiator with a knack for haranguing Wall Street. He was a co-author of a book, “The Great Mutual Fund Trap,” that criticized the industry in which his twin brother, Robert, works.

And after two Wall Street trade groups sued the agency over a rule curbing speculative trading, Mr. Gensler took a harsh tone with one executive who came to the commission to lobby on the issue. “You sued us, so it’s clear what you think about the rule,” he said, dismissing the executive’s concerns, said a person briefed on the meeting.

Bristling at the sometimes-abrasive approach, Republican lawmakers have fought to freeze or depress the commission’s $205 million budget.

While the figure is a fraction of other regulatory budgets, lawmakers and lobbyists say Mr. Gensler could cut costs by tempering his ambitions.

“I wonder if Mr. Gensler is more focused on building a personal legacy and expanding his agency’s powers than making the economy stronger and safer,” said Steven Lofchie, a partner at the law firm Cadwalader, Wickersham Taft.

Others, however, have praised Mr. Gensler for marshaling resources and stepping up the agency’s game. Mr. Gensler has sharply increased his staff to more than 700 employees. He also hired a former federal prosecutor, David Meister, as the head of enforcement.

The agency, which has previously had big cases against energy companies, brought a record number of enforcement actions last year, notably against Wall Street firms.

“We’ve come into our own as a regulator to be reckoned with, out there doing our best to protect investors and consumers every day,” said Bart Chilton, a Democratic commissioner.

The rate-rigging case is the commission’s biggest investigation yet. The case centers on how banks set a key benchmark, the London interbank offered rate, or Libor, which affects the cost of borrowing for consumers and corporations.

The investigation heated up after Mr. Gensler heard the Barclays recording. As the examination broadened, the agency assigned additional employees to the case, nearly 15 enforcement lawyers, up from three.

Mr. Gensler also championed measures to prevent Barclays from repeating its mistakes. The new controls forced the bank to report rates based on actual transactions when possible and to prevent conflicts of interest.

After more than four years of investigating, the agency filed its action against the bank on June 27. For Mr. Gensler, it was a bittersweet day. While it was the biggest moment in his regulatory career, it also was the sixth anniversary of his wife’s death from breast cancer.

Publicly, he has focused on the win. “It’s about the integrity of the market,” Mr. Gensler said. “This agency stood up for the public and said that rates have to be based on honest figures.”

A version of this article appeared in print on 08/13/2012, on page B1 of the NewYork edition with the headline: Libor Case Energizes a Wall Street Watchdog.

Article source: http://dealbook.nytimes.com/2012/08/12/libor-case-energizes-gensler-and-the-c-f-t-c/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: futures trading commission, mf global, wrongdoing

World Briefing | Europe: News International Knew of Broader Hacking in 2008, Lawmakers Are Told

October 20, 2011 by NewsMaker Leave a Comment

Julian Pike, a partner at the law firm Farrer and Co., said he knew the company’s claim that the practice was limited to one “rogue reporter,” was untrue but admitted that he “had not done very much,” with the information, as he was not obliged to reveal it. He insisted that he was “not party to any cover-up.”

The company eventually admitted to wider wrongdoing early this year, and shuttered the newspaper this summer amid a cascade of revelations. But the company was told in 2008 that three other journalists at the tabloid had been involved, Mr. Pike told a committee of lawmakers gathering evidence on a scandal that continues to pervade a wide swath of British life.

The committee will take evidence from Mr. Murdoch’s former chief lieutenant, Les Hinton, next Monday, and has said it will likely call Mr. Murdoch’s son James to give further evidence later this year. Both men face allegations, which they vehemently deny, that they were complicit in covering up phone hacking.

Article source: http://feeds.nytimes.com/click.phdo?i=1fe8ff72023bcd01397d2d357f5daa16

Filed Under: Business News Tagged With: phone hacking, wide swath, wrongdoing

Trustee Is Sought for Records of Solyndra

October 1, 2011 by NewsMaker Leave a Comment

The department said the government could not assure the fair treatment of the company’s creditors, including the Department of Energy, which granted Solyndra $528 million in loans, unless it had unimpeded access to the company’s financial records, which the executives are so far refusing to share.

The government’s filing said the executives — Brian Harrison, the chief executive; W. G. Stover, the chief financial officer; and Benjamin Schwartz, in-house counsel — were within their rights in refusing to talk about the company’s financial condition because of a pending federal investigation and potential lawsuits. The government is not accusing them of any specific wrongdoing at this time, but is seeking the appointment of a trustee to help untangle the company’s complex financial condition, the court filing said.

A company spokesman did not respond to requests for comment.

Separately, in Washington, an Energy Department official confirmed that Secretary Steven Chu personally approved a loan restructuring for Solyndra late last fall as the company’s financial problems were mounting.

Mr. Chu, who had announced the original Solyndra loan 18 months earlier with great fanfare, signed off on the loan restructuring, officials said, in hopes of staving off the company’s collapse. Solyndra declared bankruptcy in September, costing 1,100 workers their jobs and putting in jeopardy the public money that was a central pillar of its financing.

At the time of the restructuring, Solyndra had already drawn down some $460 million of its loan commitment, and Mr. Chu decided that the chance of recouping its investment would be improved by a relatively small infusion of new cash, officials said.

Republicans in Congress who are investigating Solyndra’s demise and the $38 billion Energy Department loan guarantee program are demanding to know why Mr. Chu, a Nobel Prize laureate in physics, continued to support Solyndra despite signals that it was floundering.

Representative Cliff Stearns, a Florida Republican who is leading one of two House investigations, said in a statement, “Secretary Chu and the leadership at D.O.E. ignored every warning sign pointing to Solyndra’s failure and stubbornly continued to commit taxpayer money to a doomed venture that left the American people holding the bag at a cost of $535 million.”

Mr. Stearns continued, “Chu admits that he approved the loan restructuring agreement, bringing up the question — why did he allow private investors to be placed ahead of taxpayers in recovering any funds if Solyndra failed, which is a clear violation of the Energy Policy Act and the provision on subordination?”

Damien LaVera, an Energy Department spokesman, said it was not unusual that Dr. Chu would sign off on a major loan restructuring decision.

“When the career loan program staff recommends a transaction for conditional commitment, closing or restructuring, the secretary must give final approval,” Mr. LaVera said in an e-mail, “but only after extensive and rigorous analysis by teams of career federal employees and outside experts of the risks and benefits.”

Mr. LaVera said the choice was between letting the company fail or giving it a chance to survive in a competitive global market.

Jay Carney, the White House press secretary, said on Friday afternoon that Dr. Chu had the president’s “full confidence.”

Even as controversy engulfed the Solyndra loan, the Energy Department on Friday approved more than $4.7 billion in loan guarantees for other solar energy projects as the authority for the program expired. Among the projects were a $1.46 billion loan guarantee for a 550-megawatt photovoltaic array in Riverside County, Calif.; a $646 million loan for a 230-megawatt solar plant in Los Angeles County; and a $1.4 billion guarantee to install solar panels on 750 rooftops in 28 states and the District of Columbia.

Article source: http://feeds.nytimes.com/click.phdo?i=90a58584a75a42fdd61b08116f056473

Filed Under: Business News Tagged With: creditors, mr chu, wrongdoing

U.S. Inquiry Is Said to Focus on S.&P. Ratings

August 18, 2011 by NewsMaker Leave a Comment

The investigation began before Standard Poor’s cut the United States’ AAA credit rating this month, but it is likely to add fuel to the political firestorm that has surrounded that action. Lawmakers and some administration officials have since questioned the agency’s secretive process, its credibility and the competence of its analysts, claiming to have found an error in its debt calculations.

In the mortgage inquiry, the Justice Department has been asking about instances in which the company’s analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S. P. business managers, according to the people with knowledge of the interviews. If the government finds enough evidence to support such a case, which is likely to be a civil case, it could undercut S. P.’s longstanding claim that its analysts act independently from business concerns.

It is unclear if the Justice Department investigation involves the other two ratings agencies, Moody’s and Fitch, or only S. P.

During the boom years, S. P. and other ratings agencies reaped record profits as they bestowed their highest ratings on bundles of troubled mortgage loans, which made the mortgages appear less risky and thus more valuable. They failed to anticipate the deterioration that would come in the housing market and devastate the financial system.

Since the crisis, the agencies’ business practices and models have been criticized from many corners, including in Congressional hearings and reports that have raised questions about whether independent analysis was corrupted by the drive for profits.

The Securities and Exchange Commission has also been investigating possible wrongdoing at S. P., according to a person interviewed on that matter, and may be looking at the other two major agencies, Moody’s and Fitch Ratings.

Ed Sweeney, a spokesman for S. P., said in an e-mail: “S. P. has received several requests from different government agencies over the last few years. We continue to cooperate with these requests. We do not prevent such agencies from speaking with current or former employees.” S. P. is a unit of the McGraw-Hill Companies, which is under pressure from some investors and has been considering whether to spin off businesses or make other strategic changes this summer.

The people with knowledge of the investigation said it had picked up steam early this summer, well before the debt rating issue reached a high pitch in Washington. Now members of Congress are investigating why S. P. removed the nation’s AAA rating, which is highly important to financial markets.

Representatives of the Justice Department and the S.E.C. declined to comment, as is customary for those departments, on whether they are investigating the ratings agencies.

Even though the Justice Department has the power to bring criminal charges, witnesses who have been interviewed have been told by investigators that they are pursuing a civil case.

The government has brought relatively few cases against large financial concerns for their roles in the housing blowup, and it has closed investigations into Washington Mutual and Countrywide, among others, without taking action.

The cases that have been brought are mainly civil matters. In the spring, the Justice Department filed a civil suit against Deutsche Bank and one of its units, which the government said had misrepresented the quality of mortgage loans to obtain government insurance on them. Another common thread — in that case and several others — is that no bank executives were named.

Despite the public scrutiny and outcry over the ratings agencies’ failures in the financial crisis, many investors still rely heavily on ratings from the three main agencies for their purchases of sovereign and corporate debt, as well as other complex financial products.

Companies and some countries — but not the United States — pay the agencies to receive a rating, the financial market’s version of a seal of approval. For decades, the government issued rules that banks, mutual funds and others could rely on a AAA stamp for investing decisions — which bolstered the agencies’ power.

A successful case or settlement against a giant like S. P. could accelerate the shift away from the traditional ratings system. The financial reform overhaul known as Dodd-Frank sought to decrease the emphasis on ratings in the way banks and mutual funds invest their assets. But bank regulators have been slow to spell out how that would work. A government case that showed problems beyond ineptitude might spur greater reforms, financial historians said.

Article source: http://www.nytimes.com/2011/08/18/business/us-inquiry-said-to-focus-on-s-p-ratings.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: administration officials, justice department investigation, wrongdoing

U.S. Inquiry Eyes S.&P. Ratings of Mortgages

August 18, 2011 by NewsMaker Leave a Comment

It is unclear if the Justice Department investigation involves the other two ratings agencies, Moody’s and Fitch, or only S. P.

Representatives of the Justice Department and the S.E.C. declined to comment, as is customary for those departments, on whether they are investigating the ratings agencies.

Even though the Justice Department has the power to bring criminal charges, witnesses who have been interviewed have been told by investigators that they are pursuing a civil case.

Article source: http://www.nytimes.com/2011/08/18/business/us-inquiry-said-to-focus-on-s-p-ratings.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: mortgage loans, record profits, wrongdoing

Common Sense: As a Watchdog Starves, Wall Street Is Tossed a Bone

July 16, 2011 by NewsMaker Leave a Comment

A few weeks ago, the Republican-controlled appropriations committee cut the Securities and Exchange Commission’s fiscal 2012 budget request by $222.5 million, to $1.19 billion (the same as this year’s), even though the S.E.C.’s responsibilities were vastly expanded under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Charged with protecting investors and policing markets, the S.E.C. is the nation’s front-line defense against financial fraud. The committee’s accompanying report referred to the agency’s “troubled past” and “lack of ability to manage funds,” and said the committee “remains concerned with the S.E.C.’s track record in dealing with Ponzi schemes.” The report stressed, “With the federal debt exceeding $14 trillion, the committee is committed to reducing the cost and size of government.”

But cutting the S.E.C.’s budget will have no effect on the budget deficit, won’t save taxpayers a dime and could cost the Treasury millions in lost fees and penalties. That’s because the S.E.C. isn’t financed by tax revenue, but rather by fees levied on those it regulates, which include all the big securities firms.

A little-noticed provision in Dodd-Frank mandates that those fees can’t exceed the S.E.C.’s budget. So cutting its requested budget by $222.5 million saves Wall Street the same amount, and means regulated firms will pay $136 million less in fiscal 2012 than they did the previous year, the S.E.C. projects.

Moreover, enforcement actions generate billions of dollars in revenue in the form of fines, disgorgements and other penalties. Last year the S.E.C. turned over $2.2 billion to victims of financial wrongdoing and paid hundreds of millions more to the Treasury, helping to reduce the deficit.

But the S.E.C. has become a favorite whipping boy of those hostile to market reforms. Admittedly the agency has given them plenty of fodder: revelations that a few staff members were looking at pornography on their office computers; a questionable $557 million lease for new office space, subsequently unwound; and the agency’s notorious failure to catch Bernard Madoff. Nonetheless, in the wake of the recent Ponzi schemes, evidence of growing insider-trading rings involving the Galleon Group and others, potential market manipulation in the still-mystifying flash crash, not to mention myriad unanswered questions about wrongdoing during the financial crisis, the need for vigorous securities law enforcement seems both self-evident and compelling.

A bribery scandal at Tyson Foods — a scheme that Tyson itself admitted — resulted in charges against the company earlier this year. But no individuals were charged. While the S.E.C. wouldn’t disclose its reasons, the case involved foreign witnesses and was therefore expensive to investigate and prosecute. The decision not to pursue charges may have involved many factors, but one disturbing possibility was that the agency simply couldn’t afford to, given its limited resources.

Robert Khuzami, the S.E.C.’s head of enforcement, told me his division was underfunded even before Dodd-Frank expanded its responsibilities and that the proposed appropriation would leave his division in dire straits. The S.E.C. oversees more than 35,000 publicly traded companies and regulated institutions, not counting the hedge fund advisers that would be added under the new legislation. While he wouldn’t comment on Tyson, he noted that with fixed costs like salaries accounting for nearly 70 percent of the agency’s budget, “you have to squeeze the savings out of what’s left, like travel, and especially foreign travel, at a time we see more globalization, more insider trading through offshore accounts. It’s highly cost-intensive.”

An S.E.C. memo on the committee’s proposed budget warns: “We may be forced to decline to prosecute certain persons who violate the law; settle cases on terms we might otherwise not prefer; name fewer defendants in a given action; restrict the types of investigative techniques employed; or conclude investigations earlier than we otherwise would.”

It’s not just that cases aren’t being adequately investigated and filed. Under Mr. Khuzami and the S.E.C.’s chairwoman, Mary L. Schapiro, the enforcement division has tried to be more proactive, detecting complex frauds before they cost investors billions. Mr. Khuzami stressed that analyzing trading patterns involves a staggering amount of data, especially the high-frequency trading that crippled markets during last year’s flash crash, and requires investment in state-of-the-art information technology the S.E.C. lacks. Sorting through the wreckage of the mortgage crisis, with its complex derivatives and millions of mortgages bundled into esoteric trading vehicles, is highly labor-intensive.

E-mail: jim.stewart@nytimes.com

Article source: http://feeds.nytimes.com/click.phdo?i=2ab86aa5f09c3ee943f55ccb5d3194b3

Filed Under: Business News Tagged With: common sense, dodd, wrongdoing

DealBook: S.E.C. Adopts Its Revised Rules for Whistle-Blowers

May 26, 2011 by NewsMaker Leave a Comment

Joshua Roberts/Bloomberg NewsKathleen L. Casey and Troy A. Paredes, the S.E.C.’s two Republican commissioners, voted against the whistle-blower rules.
Astrid Riecken/Bloomberg News

7:52 p.m. | Updated

WASHINGTON — A divided Securities and Exchange Commission narrowly approved rules on Wednesday to create a $300 million whistle-blower program.

Supporters of the program said it would help the agency crack down on wrongdoing, but opponents contend it would actually hamper the ability of companies to police themselves.

The final rules, which were approved by a 3-to-2 vote, included several changes from rules first proposed by the S.E.C. last year after passage of the Dodd-Frank regulatory law that provided for the program. One of the changes included a potential bonus if corporate employees first report suspected wrongdoing through their company’s internal compliance system.

Business groups worried that bypassing internal reporting procedures would undercut the multimillion-dollar investments they have made to strengthen their compliance departments in response to tougher post-Enron corporate rules and laws, including the Sarbanes-Oxley Act.

But the new rules still drew complaints as opponents contended that the program would still require a whistle-blower to report wrongdoing to the S.E.C. as well as to a company’s internal systems in order to guarantee eligibility for a reward.

Mary L. Schapiro, the S.E.C. chairwoman, said the rules were important to the agency because it has limited resources and therefore needs “to be able to leverage the resources of people who may have first-hand information about potential violations.”

The whistle-blower provisions were written partly in response to the agency’s failure to uncover Bernard L. Madoff’s Ponzi scheme and other similar frauds.

Previously, the S.E.C. had authority to reward tipsters only in insider trading cases and was limited to paying 10 percent of the penalties collected.

The new rules provide for payment of 10 percent to 30 percent of the collected amount when the sanctions imposed by regulators exceed $1 million. In determining the size of the reward, the agency can take into account the value of the tips offered and a whistle-blower’s cooperation with the company’s internal notice program.

The changes from the original proposals, which attracted 240 comments and more than 1,300 form letters, were not enough for the S.E.C.’s two Republican commissioners, Kathleen L. Casey and Troy A. Paredes, who both voted against the rules.

“The final rule permits a whistle-blower to knowingly bypass a company’s good-faith attempts to identify and investigate alleged violations,” Mr. Paredes said, and does not require the S.E.C. to reward an employee for first going to his employer with a tip. Rather, the rule says the agency “may increase” the reward based on that cooperation.

Ms. Casey noted that companies could usually investigate wrongdoing far more quickly than the S.E.C., and that by giving tipsters an incentive to go to the commission, frauds could be allowed to grow worse because of the slower response.

The new program also “significantly overestimates our capacity to effectively triage and manage whistle-blower complaints,” Ms. Casey said. Predicting that the number of complaints flowing into the S.E.C. will grow “as we begin writing some very large checks,” Ms. Casey said “too little has been done here to anticipate” that result.

Robert Khuzami, the S.E.C.’s director of enforcement, said the S.E.C. had seen “an uptick” in the number of complaints since the Dodd-Frank Act went into effect last July, but there had not been a flood. The quality of the tips has improved as well, he said, and they are often accompanied with detailed corroboration.

Sean McKessy, the chief of the S.E.C.’s new whistle-blower office, said the agency’s ability to separate out credible tips also will be enhanced by requirements that potential whistle-blowers identify themselves as seeking a possible reward, and providing a sworn statement, under penalty of perjury, that the information is true.

The United States Chamber of Commerce, which lobbied against the proposed rules, expressed continued dismay. “We have already seen trial lawyers running advertisements and training seminars on how to profit from bounty programs adopted under these rules,” the chamber said in a statement. The new rule will lead lawyers to urge whistle-blowers to keep their company in the dark, it said.

That statement, however, appears not to take into account provisions that allow the S.E.C. to increase a bounty if a whistle-blower notified a company’s compliance program first.

Erika A. Kelton, a lawyer with Phillips Cohen in Washington, said that in more than two decades representing whistle-blowers, her firm has found that “in almost all cases, employees have reported their concerns about misconduct and fraud to managers and supervisors first.”

“It has only been after they have been retaliated against for doing so that they have come to us,” Ms. Kelton added.

The rules also exclude certain people from being eligible for the awards, including people involved in the wrongdoing, lawyers who gain privileged information from clients, foreign government officials and compliance and internal audit employees.

There are exceptions, however. Compliance and internal audit workers or public accountants, who see that a company has not acted on tips of wrongdoing, could be eligible, as could an informant who believes that a company is trying to obstruct an investigation.

Article source: http://feeds.nytimes.com/click.phdo?i=23f2fe3a5cdf10a10db3f8a257d05020

Filed Under: Business News Tagged With: multimillion dollar, securities and exchange commission, wrongdoing