By Bill Singer
On Thursday March 5, 2009, FINRA issued a press release entitled FINRA Announces Creation of "Office of the Whistleblower": Dedicated Team to Handle High-Risk Tips. On that same day, I published an open letter to FINRA (Richard Ketchum, Stephen Luparello, and Cameron Funkhouser) seeking a long overdue and oft postponed meeting (by FINRA) for the purpose of raising the FINRA Dissident/Reform agenda with our self-regulator. While the two events were unconnected, they now have become eerily so
I first wrote about the issue of disregarded Whistleblowers in January 2004 in "Whistleblowers Save Your Breath" (Registered Rep. Magazine). Much of what I forewarned about some five years ago, was more recently attested to in lurid detail by Harry Markopolos's chilling tale of the failure of regulators to give credence to his whistleblowing about Bernard Madoff. Pointedly, as Markopolos was quoted in the Associated Press story Lawmaker says SEC hindering House's Madoff probe:
Because of the SEC's inaction, "I became fearful for the safety of my family," Markopolos said.
"The SEC is ... captive to the industry it regulates and is afraid" to bring big cases against prominent individuals, Markopolos said. The agency "roars like a lion and bites like a flea" and "is busy protecting the big financial predators from investors."
While the SEC is incompetent, the securities industry's self-policing organization, the Financial Industry Regulatory Authority, is "very corrupt," Markopolos charged. That organization was headed until December by Mary Schapiro, President Barack Obama's new SEC chief.
In FINRA's March 5th Whistleblower release, we are told that Senior Vice President Cameron Funhouser has been appointed to head the new Office of the Whistleblower. We are further advised that
One of the important lessons learned from the recent scandals is the need for regulators to recognize and react to regulatory intelligence offered by whistleblowers," said Stephen Luparello, FINRA's Interim CEO. "We want to encourage individuals with evidence of, or material information about, potentially illegal or unethical activity to come forward. This new initiative will ensure that individuals with significant information will reach senior staff, who can quickly assess the level of risk involved and make sure that each tip is properly evaluated. Those tips warranting additional review and investigation will be subject to an expedited regulatory response.
Let me offer the following observations and comments on FINRA's announcement.
In consideration of all of the above, I think that the industry could well find a way to work with Cam Funhouser, if only his superiors and colleagues at FINRA would respond to the overture of the Dissident/Reform Movement. However, despite my confidence in Cam, under no circumstances will I refer any whistleblowers to FINRA until such time as I see proof that the regulator's fine words in its press releases are truly backed up by a sincere commitment.
Until such time as I get a response to my email to FINRA, I am done referring cases to FINRA and will not direct any callers to that regulator--I will refer them elsewhere. For now, I urge all to take heed of Harry Markopolos' opinions.