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Re: whistleblowers

Postby admin » Tue Jan 11, 2011 9:16 am

Why Canada’s federal whistleblower protection law needs to be rewritten

David Hutton – The Hill Times, January 10, 2010

In the wake of the Auditor General’s startling revelations regarding misconduct by the government’s whistleblower watchdog, there’s a tendency to attribute all of the problems to former public sector integrity commissioner Christiane Ouimet’s actions.

The reality is that deeply flawed legislation – which experts confidently predicted would fail – gave Ouimet the discretion to turn away virtually all whistleblowers, denying them any possible remedy and effectively providing cover for dozens of accused wrongdoers.

Even a committed and proactive commissioner will find his or her hands tied by the same faulty law: this system simply cannot be made to work without major changes.

It’s impossible to grasp what happened here without understanding the context: the almost universal hostility that exists towards whistleblowers by employers, including government departments. The interests of those in power are nearly always threatened when allegations of wrongdoing surface – especially if these are true! This hostile attitude is evident in the way that employers invariably portray whistleblowers as irresponsible, untrustworthy, attention-seekers, mentally unbalanced or motivated by personal vendettas – although research consistently finds that they are the most loyal, the most diligent high-performers. These distortions are all part of a strategy designed to silence, crush, discredit and, above all, to punish truth-tellers for ‘disloyalty’.

This attitude is also evident in the extreme lengths that institutions will go to in order to crush and silence truth-tellers. When FAIR’s founder, Joanna Gualtieri, sued her bosses for harassment after she warned the department about massive waste and extravagance in its accommodations for diplomats abroad, government lawyers dragged out her case for 12 years, forcing her to answer 10,576 questions during pre-trial discoveries – only to settle in the end, virtually on the courthouse steps. After wasting millions of taxpayers dollars on this obscene abuse of legal process, the government finally gagged her: she apparently cannot discuss any aspect of her case or her allegations. And this is not an isolated example.

This institutional hostility is also evident in jurisdictions around the world, where laws drafted to protect honest employees have been systematically sabotaged by those in power: by gutting legislation so that it has no teeth; by starving enforcement agencies of resources; and by putting in charge people who can be relied on to protect the status quo. Many would consider Ouimet to be just such a choice.

So, although many ordinary Canadians may be shocked and puzzled by the failure of this system, informed observers and experts in the field are not surprised: given the background, this is pretty much what we expected to happen. Canadian politicians have not yet become serious about protecting whistleblowers, and will not do so until the public demands protection for honest conduct in the workplace.

What’s wrong with the law we have today? There are so many problems that it’s difficult to know where to start. Just three examples will have to suffice, although these only scratch the surface.

1) Most real-life cases can (or must) be refused on jurisdictional reasons

The whistleblower law allows (and in many cases requires) the public sector integrity commissioner (PSIC) to refuse to deal with a complaint that is being dealt with, has been dealt with, or could be dealt with by some other process.

For example, suppose that the whistleblower has already launched a grievance against apparent reprisals by bosses and finds that it is going badly. PSIC will refuse to deal with this person’s complaint because there is another process (the grievance) under way. Once the grievance is settled, PSIC will again refuse to deal with the complaint because it has already been dealt with by another process. Suppose that the bosses accused of wrongdoing were involved in settling the grievance? That doesn’t matter – because the grievance process provides a comprehensive remedy, according to legal precedents. What if the whistleblower didn’t launch a grievance? PSIC can still refuse to deal with the case on the grounds that it would be better dealt with by some other process – like a grievance.

It’s a true Catch-22 situation. Since the law allows (or even requires) PSIC to defer to any other jurisdiction, there’s virtually nothing left that it can or must deal with: it can turn everyone away.

This is bizarre, especially when you consider that grievances, internal departmental investigations and the like almost never work in whistleblower cases – because bosses can so easily manipulate these and turn them into reprisals. That’s supposedly the very reason why this law was created – so that there is somewhere safe for honest employees to go when all other official channels have failed.

2) The Commissioner cannot pursue investigations that lead into the private sector

It is noteworthy that the auditor general, after launching her investigations into PSIC under the whistleblower legislation (thus assuming the powers of the integrity commissioner) abandoned this approach within weeks and continued her investigation under the powers of the Auditor General Act. She did this mainly because the whistleblower law did not give her the authority to investigate any private sector involvement. Being blocked from the private sector would seriously impede her investigation even if the private sector participants had done nothing wrong but were merely witnesses.

Why would the private sector be excluded from any investigation where public resources are possibly being misused? Probably the majority of government whistleblowers who come to us allege scams that involve the private sector in some way: contracting fraud and manipulation; grants handed out to phony companies that do no real work; consultants and auditors hired to write phony reports exonerating wrongdoers… the possibilities are endless. If we reflect upon the major scandals that have become public in the past few decades – the tainted blood scandal, the gun registry overrun, the sponsorship scandal – every one has had significant private sector involvement.

In an era where public-private partnerships of all sorts are in vogue, when much of the work of government is being done through contractors, this is a gaping omission in the law.

3) The Tribunal (that never sat) will probably never protect anyone

The law does not give PSIC any power to protect whistleblowers directly: the commissioner can only investigate complaints of reprisal, and if these are founded, refer the case to a tribunal. This is a special-purpose administrative body, a kind of pseudo court that adjudicates complaints of reprisal by hearing evidence from both parties.

Out of the 55 complaints of reprisal submitted over three years, only a handful of were investigated and not a single one was referred to the Tribunal. So this body, with a small full time staff and an annual budget of $1.8 million sat idle, waiting, waiting… and no whistleblower even had the opportunity to plead for protection.

Unfortunately even if any cases had been referred to it, we expect the tribunal to be a kangaroo court, nearly always finding against the whistleblower – because of the way the law is written.

The most serious obstacle is that the law puts the onus on the whistleblower to prove that any adverse actions taken were reprisals for a disclosure of wrongdoing. In practice this is usually impossible for an employee to prove since bosses engaged in such harassment generally don’t admit to it, and proof is hard to obtain. However, without such proof the employee has no recourse, no possible remedy, and no defence against further retaliation.

The solution adopted in more progressive jurisdictions, is a reverse onus provision: once the employee has proven that there is a connection between the whistleblowing and the adverse action (e.g. a short time frame between the whistleblowing and a demotion) the burden shifts to the employer to prove that these actions were taken for good reasons other than retaliation. Even with this reverse onus, proving reprisal is not a slam dunk for the whistleblower – only about 20 percent prevail – but at least they have a chance.

There is also little pressure on this tribunal to perform: it can hold its hearings in secret, it can take as long as it likes, and it does not even have to file its decisions with the Federal Court. The only avenue of appeal is to a judicial review. No matter how questionable the Tribunal’s actions or decisions the whistleblower cannot gain access to the normal court system, with court reporters, rules of procedure and judges who can be impartial because their tenure is secure.

The seriousness of this problem can be seen by examining U.S.A. experience of a similar arrangement (a special purpose administrative body, no access or right of appeal to the courts, and no reverse onus provision): of the first 2,000 whistleblowers who submitted complaints of reprisal, only four prevailed.

As a final insult, the whistleblower is given no legal assistance to make their case before the tribunal – only $1,500 for pre-tribunal consultations (if the commissioner authorizes this). Considering that those accused of wrongdoing will certainly have their hefty legal bills paid by Treasury Board, it’s difficult to imagine a more uneven playing field.

These three examples address just a few of the problems build into this law: there are many others just as serious. The bottom line is that it creates a regime that is littered with deadly traps and loopholes, shrouded in impenetrable and unnecessary secrecy, and stacked against the whistleblower, so that few (if any) can ever prevail.

But perhaps the most serious failing lies in the basic concept: creating a complete quasi-legal system in a bubble with a monopoly over whistleblower cases. This system is hermetically sealed off from the outside world, from the proper legal system, from access to information, from the media. Rather than giving whistleblowers more choices and more control on their dangerous journey, it forces them into a secretive bureaucratic process that is little more than an elaborate trap with multiple jaws. Can it be fixed without starting over? That remains to be seen.

FAIR is in the process of re-writing our four-year old publication “What’s wrong with the PSDPA” to explain in more detail the full scope of the problems with this law. We are also working with other organizations such as Canadians for Accountability and the Democracy Watch-led nationwide Government Ethics Coalition, with the goal of arriving at a common position regarding what should be done to fix the problems when Parliament returns at the end of this month.

It’s time for politicians of all stripes to do the right thing, to scrap this sorry piece of legal window-dressing and give us a law that will truly protect honest employees, so that they can protect the public interest. How can any party claim to be serious about transparency and accountability as long as they deny this fundamental right to Canadian employees? The time to act is now.

David Hutton
Executive Director
FAIR (Federal Accountability Initiative for Reform)
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Re: whistleblowers

Postby admin » Mon Dec 27, 2010 10:42 am

William K. BlackAssoc. Professor, Univ. of Missouri, Kansas City; Sr. regulator during S&L debacle
Posted: December 27, 2010 11:27 AM

Why Cash Incentives for Whistleblowers Are So Useful Against Control Frauds

Read More: Control Fraud , Fraud , Mortgage Fraud , SEC Whistleblowers , Sec Whistleblowers Fund , Whistleblowers , Whistleblowing , Business News

Marty Robins' December 15, 2010, column "Blow the Whistle on Pointless Whistleblowing" in The Huffington Post opposed the SEC implementing the Dodd-Franks Act's provision that the SEC should develop a system of financial incentives for whistleblowers. Mr. Robins is a former corporate counsel with strongly conservative, anti-regulatory views. His purpose in writing was to enlist support for businesses lobbying the SEC to adopt a weak rule undercutting the Dodd-Frank's whistleblowing provision. I'm interested in the SEC rule on its merits and as a serial whistleblower, but Mr. Robins' primary arguments as to why this provision of the law was "pointless" is that fraud is trivial and played no material role in the crisis. As a white-collar criminologist and former senior financial regulator I find his claim as dangerous as it is astounding.

Mr. Robins does not evince any expertise in investigating sophisticated financial frauds, but he has strong views on such frauds.

In the first instance, this effort [to increase whistleblowing] is totally unrelated to financial stability. While the 2008 crisis and Great Recession were undoubtedly the result of terrible decisions on Wall Street, by mortgage originators and by borrowers on Main Street, in lending and borrowing beyond ability to pay, virtually none of this activity was even arguably illegal. As indicated by the absence of criminal prosecutions, there is nothing illegal about doing things that are really dumb. These new provisions in the law will do nothing to deter abject stupidity on the part of private actors that imperils the broader economy. As noted, doing the latter requires significant reform of corporate governance law. There is no credible evidence that illegality had anything to do with the financial meltdown.

Mr. Robins feels no need to cite any experts or data to support his assertions that fraud played no role in the crisis. He believes his case is demonstrated conclusively "by the absence of criminal prosecutions."

Mr. Robins timing on his column is embarrassing to his thesis, for it is contemporaneous with mea culpas and data refuting his thesis and excoriating the Justice Department for its lack of prosecutions. Joseph Stiglitz, Alan Greenspan, and Andrew Ross Sorkin have recently emphasized the prominent role of fraud in the crisis and decried the fact that elite bankers looted with impunity. These are remarkable advances. Until very recently Dr. Stiglitz refused to use the "f" word. Chairman Greenspan infamously refused to use the Fed's unique statutory authority (under HOEPA) to regulate the unregulated lenders that made the bulk of the fraudulent loans. Greenspan refused to regulate on the grounds that the securities markets automatically excluded material fraud. The securities and contract markets must exclude fraud or they would not be "efficient" -- and because all of "modern finance" and much of modern microeconomics was based on the efficient market and contracts hypotheses, it followed that fraud must not exist. Sorkin, the New York Times' leading columnist on financial elites, had never been willing to contemplate fraudulent elites. This made his epiphany all the more striking.

Many experts, of course, have been warning about the role of fraud in the crisis for a very long time. The FBI began using the word "epidemic" to describe mortgage fraud in September 2004 and predicting that it would cause an economic crisis if it were not contained. It was not contained. Instead the epidemic grew rapidly. The FBI warning was more than six years ago. Greenspan, Bernanke, and Geithner all ignored it -- and produced a disaster of proportions not seen in 75 years. Criminologists that specialize in the study of white-collar crime, and economists that have expanded the canon to consider the findings of criminologists, have written, spoken, and testified about the driving role that control fraud played in the crisis and provided the data and analysis supporting their findings. Mr. Robins appears to be unaware of all of this, as he certainly attempts no refutation of the facts or analysis.

Mr. Robins' claim that it is self-evident that insider fraud played no meaningful role in the crisis is curious. In the U.S., this is the third financial crisis in 20 years. The national commission that reported on the S&L debacle found that "fraud" was "invariably present" at the "typical large failure." Those frauds were led by the senior S&L officials and used accounting as their "weapon," i.e. they were "accounting control frauds." The Enron era frauds were also accounting control frauds. Why would this third in a series of recurrent, intensifying crises be uniquely free of fraud? Was it because private market discipline became far more effective? Did the banks, in 2003-2007, characteristically refuse to fund imprudent or fraudulent loans? Did banking and SEC regulation and supervision in 2003-2007 become substantially more effective? Did bank executive compensation become substantially more strongly tied to real, long-term bank profitability during that period? Did executive compensation fall sharply so that a CEO could no longer become wealthy by substantially inflating reported income for four years?

The banking environment became increasingly criminogenic during 2003-2007 precisely because each of the factors discussed above became more perverse as the crisis grew. Fraud also begets fraud. As an epidemic of accounting control fraud grows it can cause bubbles to hyper-inflate (which makes the environment increasingly criminogenic) and triggers "echo" epidemics. The mortgage fraud epidemic, for example, sparked an epidemic of fraudulent appraisals and loan applications by loan brokers.

The burden is on Mr. Robins to explain why this crisis has no fraud. Given an undisputed epidemic of mortgage fraud and a crisis that arose in mortgages he cannot meet that burden. The criminogenic environment that prompted this crisis exceeded the perverse incentives that drove the second phase of the S&L debacle and the Enron era frauds. Publicly available reports on the Icelandic and Irish crises also demonstrate severe insider fraud. Again, Mr. Robins does not even attempt to respond to these facts and the accompanying analytics.

Mr. Robins' sole claim is that a lack of prosecutions proves "there is nothing illegal." That claim lacks any logical basis and has long been rejected by critics from the right and the left. The famous conservative economist Bastiat warned:

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it."

Edwin Sutherland, the scholar that identified and named "white-collar crime," warned that looking at criminal prosecutions systematically and massively undercounted elite financial crimes because powerful corporations were far less likely to be prosecuted when they violated the law.

Go back in time to early 1986. There were no prosecutions of elite savings and loan (S&L) officers. Seven years later, there were more than 1,000 successful felony prosecutions of elites for S&L frauds. The fraudulent conduct was endemic in 1986. The National Commission on Financial Institution Reform, Recovery and Enforcement reported in 1993 that "at the typical large failure" "fraud was invariably present." Criminal referrals by the Federal Home Loan Bank Board (Bank Board) were just beginning to ramp up at the direction of Bank Board Chairman Gray in early 1986. (Representative Barnard's House investigation of the agency's failure to file criminal referrals helped provide Gray with the impetus to make his reforms.) Superb criminal referrals by the regulators are a sine qua non for successful prosecutions of large numbers of sophisticated financial frauds by the officials who control banks (which white-collar criminologists refer to as "accounting control fraud"). It takes time for the FBI to investigate once the agency begins to file large numbers of criminal referrals and the interconnections between fraudulent lenders require many referrals and investigations to establish. The lack of criminal prosecutions in 2006 proved that the combination of deregulation and desupervision at the agency level and the FBI's inability to investigate successfully complex accounting frauds led by senior managers and the low priority that the FBI had assigned to such investigations created a self-fulfilling prophecy. If you don't investigate effectively, you don't find sophisticated financial frauds.

Go back in time to early 1985 when there were few prosecutions for insider trading -- but widespread insider trading. The U.S. Attorney for the Southern District of New York, Rudy Giuliani, came into federal service denouncing the emphasis on prosecuting white-collar crime. He left that office to become mayor of New York City on the strength of his many successful prosecutions of elite white-collar criminals, particularly for insider trading. The most profitable investment banking firm in America, Drexel Burham Lambert, was exposed as an accounting control fraud.

Go back in time to 2001. There were few prosecutions for accounting control frauds among major firms. President Bush chose Harvey Pitt to be the new chairman of the SEC because he was the leading opponent (in alliance with Rubin and Summers -- the leaders of Clinton's economic team) of his predecessor's efforts to prevent the conflicts of interest among auditors that helped produce the criminogenic environment that triggered an epidemic of accounting control fraud. Chairman Pitt's first major speech was to the accounting profession, in which he blamed his agency for not always being "kinder and gentler" in its dealings with auditors. By late 2002, the failure of the accounting control frauds helped drive a massive loss in the market value of U.S. stocks and prosecuting accounting control fraud would soon become a federal priority. By 2005, there were a series of largely successful prosecutions against the controlling officers of many enormous corporations.

In 2001, there were few federal investigations or prosecutions for a wide range of Wall Street frauds, for example mutual funds. By 2003, Eliot Spitzer's investigations established the existence of widespread Wall Street frauds. The lack of federal prosecutions demonstrated the failures of the SEC and the Department of Justice, not the lack of crime. The failures intensified the criminogenic environment that made Wall Street the epicenter of control fraud.

Unfortunately, 2001 also brought the terrorist attacks on the U.S. and led the FBI to transfer more than 500 special agents from investigating white-collar crimes to national security. The rationale for the transfers was clear, but the refusal of the Bush administration to allow the FBI to hire replacements for the lost white-collar specialists seriously reduced the Justice Department's capacity to respond to sophisticated financial frauds. (Criminologists refer to this as a "systems capacity" problem.) With most of its remaining top white-collar-crime special agents assigned to investigating the accounting control frauds of the Enron era, the FBI's ability to counter the emerging accounting control frauds that drove the current crisis was crippled.

The FBI testified in September 2004 that there was an emerging "epidemic" of mortgage fraud and predicted that it would cause an economic crisis if it were not contained. More recently, FBI Deputy Director John Pistole testified before the Senate on February 11, 2009:

[I]t would be irresponsible to neglect mortgage fraud's impact on the U.S. housing and financial markets.
The number of open FBI mortgage fraud investigations has risen from 881 in FY 2006 to more than 1,600 in FY 2008. In addition, the FBI has more than 530 open corporate fraud investigations, including 38 corporate fraud and financial institution matters directly related to the current financial crisis. These corporate and financial institution failure investigations involve financial statement manipulation, accounting fraud and insider trading. The increasing mortgage, corporate fraud, and financial institution failure case inventory is straining the FBI's limited White Collar Crime resources.

In December 2008, the FBI dedicated resources to create the National Mortgage Fraud Team at FBI headquarters in Washington, D.C. The Team has the specific responsibility for all management of the mortgage fraud program at both the origination and corporate level. This Team will be assisting the field offices in addressing the mortgage fraud problem at all levels. The current financial crisis, however, has required the FBI to move resources from other white collar crime and criminal programs in order to appropriately address the crime problem. Since January 2007, the FBI has increased its agent and analyst manpower working mortgage fraud investigations. The Team provides tools to identify the most egregious mortgage fraud perpetrators, prioritize pending investigations, and provide information to evaluate where additional manpower is needed.

[T]he FBI has increased the number of agents around the country who investigate mortgage fraud cases from 120 Special Agents in FY 2007 to 180 Special Agents in FY 2008.

Mr. Pistole is now the head of the Transportation Safety Administration. Good for the struggle to safeguard us from terrorists, bad for the effort against mortgage fraud.

The current epidemic of accounting control frauds has caused massively greater damage than did their S&L counterparts, but the number of FBI agents assigned to deal with the current epidemic is far smaller than the staff assigned to the investigations of the S&L control frauds. DOJ has recently informed Congress that in Fiscal Year (FY) 1992 (the peak year for S&L prosecutions) there were:

FY 1992 Actual Obligations: 2,926 positions (992 agents, 655 attorneys, and 1,279 other); 2,795 FTE; and265,108,000.
For mortgage fraud, in the coming year, DOJ said it is "projecting for FY 2009, approximately 500 positions and up to100 million... "
To provide fewer than one-fifth the staff and less than 40 percent of the budget (and that budget comparison ignores 17 years of salary and other cost increases) than proved necessary to deal with the vastly smaller epidemic of S&L accounting control frauds the DOJ has had to cannibalize other, already severely inadequately staffed efforts against other serious white-collar crimes. That makes us more vulnerable to the next epidemics of control fraud in other fields.

The mortgage industry informed its members that:

The FBI reports that, based on existing investigations, 80 percent of all reported fraud losses arise from fraud for profit schemes that involve industry insiders.

The data on the FBI's grossly inadequate resources to deal with white-collar crime have several important implications for Robin's claims. They help to show why the FBI has not conducted effective investigations against the accounting control frauds that drove the nonprime housing crisis. The data show that the FBI failed to even begin their investigations of the major nonprime lenders until 2007, after the secondary market in nonprime paper collapsed. If you don't investigate, you don't find. Even when the FBI began these investigations it faced crippling systems capacity problems. It takes roughly 100 FBI agents to staff the investigation of a huge fraud such as Enron. In the current crisis, the FBI authorized investigations of roughly 20 lenders of roughly the size of Enron (a number were far larger than Enron). As recently as FY 2008 it had a total of 120 agents to investigate all mortgage frauds. It had no national task force. Its agency was scattered across the nation in what the military would call "penny pockets." These tiny, scattered groups of agents with no national coordination, no systematic search for interconnections, and no national prioritization worked on whatever cases came to their local attention. They were overwhelmingly (almost exclusively) assigned to smaller cases rather than the large nonprime lenders. There is no indication that they engaged in wiretapping, bugging, or undercover investigations of any large lender. They had no chance of success in investigating any large lender under these limitations.

The current crisis is far worse than the S&L debacle on multiple dimensions. When I'm asked for my judgment I guesstimate it as 40 times worse. Pick whatever multiple you consider reasonable -- and use it to estimate the FBI and DOJ resources essential to investigate the control frauds in this crisis. By any measure, the FBI's resources assigned to mortgage fraud were and will be grotesquely inadequate to deal with the fraud epidemic even if they were optimally assigned. In reality, due to the death of effective supervision, the Treasury regulators (OCC and OTS) ceased making criminal referrals. Without the guidance, resources, and expertise of regulators, FBI resources were repeatedly misallocated to what should have been far lower priority cases. I will return in future columns to estimates of the incidence and injury of the accounting control frauds that drove this crisis and explanations of why DOJ prioritization became so ineffective in this crisis.

I will also return to the question of how best to incent whistleblowers in future columns. For now, I will simply explain that Mr. Robins has, inadvertently, prompted a discussion of a vital distinction. If control fraud were rare and not particularly damaging then the proposed financial incentives for whistleblowers would be more dubious. If one assumes that only junior officials commit fraud and that the corporation wishes to prevent their frauds and will take prompt, effective action against them upon another employee blowing the whistle, then paying whistleblowers will only cause a substantial reduction in fraud if it incents correctly blowing the whistle in cases where the employee would otherwise have failed to blow the whistle.

One cannot, however, assume that the firm will take action against the frauds when an employee blows the whistle on a control fraud. In the case of control frauds the firm's controlling officials want the firm to engage in fraud. They will not take prompt, effective action against the controlling officers or those assisting the fraudulent controlling officers when the whistle is blown. Instead, they will typically retaliate against those that blow the whistle.

Control frauds cause massively greater losses than do "rogue" frauds by more junior officers and employees. Indeed, control frauds cause greater financial losses than all other forms of property crime -- combined. Some variants of control fraud maim and kill (think Chinese infant formula) and others do great environmental damage. When epidemics of accounting control fraud concentrate in single field they are likely to cause financial bubbles to hyper-inflate and can cause economic crises. The SEC's top priority should be to identify at the earliest possible time accounting control frauds and put them out of business. Financial incentives for whistleblowing may prove very effective in helping the SEC identify these frauds at an early point. It is an empirical question. (The SEC can counter the claim that financial incentives tied to loss could lead to delaying blowing the whistle until damages have grown by providing a sharp loss in incentive payments if the whistle blower delays unduly in blowing the whistle.)

It is essential for the SEC to understand that the status quo also employs financial incentives and they are far larger and totally perverse relative to the financial incentives the SEC is considering. The status quo is that accounting control frauds frequently use broad performance bonus programs. Fannie Mae, for example, had its internal auditors on such a plan -- and the results were, as intended by senior management, the death of internal controls. These broad, generous bonus programs enlist thousands of potential allies (who can manipulate the accounts while providing those controlling the fraud with deniability -- they will in many cases not know the exact means by which the firm made the "number"). The bonuses also align the interests of those who are supposed to provide internal controls, governance, and checks and balances with those that control the firm. Executive compensation typically further misaligns the interests of the CEO and the shareholder. Finally, the bonus programs eviscerate whistleblowing. The officer that blows the whistle not only loses his bonus, but also his peers and his employees lose their bonuses. Ostracism is already one of the worst forms of retaliation against the person who blows the whistle. The bonuses ensure that the ostracism will be brutal. Whistleblowers are one of the leading ways in which regulators learn of control fraud, so any reduction in blowing the whistle on control fraud is a major loss. To sum it up, once Mr. Robins' false assumption that fraud played no material role in the crisis is cleared up, the distinction between control fraud and rogue frauds provides a powerful justification for the Dodd-Frank provisions calling for financial incentives for those that blow the whistle on corporate fraud.

Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.

Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.

http://www.huffingtonpost.com/william-k ... 01558.html
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Re: whistleblowers

Postby admin » Wed Dec 15, 2010 12:36 pm

Whistleblower 'bounty' plan under fire

National Post
Susan Hackett, senior vice-president and general counsel to the ACC, said
corporate counsel are hoping the SEC will limit its definition of 'whistleblower.'
Drew Hasselback, Financial Post · Wednesday, Dec. 15, 2010

In-house lawyers for some of the largest companies in North America are warning the U.S. Securities and Exchange Commission that a proposal to pay large rewards to whistleblowers will do more to create "bounty hunters" than it will to root out bad corporate apples.

The Association of Corporate Counsel, an international group that represents 27,000 in-house lawyers in 70 countries, is offering its comments on the proposed whistleblower rules in a letter to be filed with the SEC on Wednesday.

The gist of ACC's concern is that the whistleblower provisions run contrary to existing U.S. corporate policies, which encourage companies to police themselves by having employees report misconduct internally. The new regime, which is mandated by the Dodd-Frank financial reforms, would grant both protection and payment to whistleblowers who report matters directly to the SEC.

Susan Hackett, senior vice-president and general counsel to the ACC, said corporate counsel have no trouble with whistleblowers receiving legal protection. Rather, they're hoping the SEC will limit its definition of "whistleblower" to those who've tried to report problems internally before reaching out to the SEC. Otherwise, the rewards promised under Dodd-Frank, which range from 10% to 30% of any financial penalties resulting from enforcement actions, could lead employees to contact the SEC first in search of windfalls.

"To my mind a whistleblower is someone who needs protection, not someone who tries to figure out how to skewer the company," Ms. Hackett said.

The letter has been cosigned by counsel from at least 250 of the largest companies in the United States, among them Anheuser-Busch InBev, FedEx Corp., Intel Corp., Mc-Donald's Corp., and even some big Canadian companies with U.S. operations, including BMO Financial Group, Royal Bank of Canada and TD Bank Financial Group.

Contacted Tuesday, Simon Fish, executive vice-president and general counsel to BMO, said that nothing in the existing rules prevents an employee from reporting a problem to an external body, such as the SEC.

However, he suggests that having a regime that encourages internal reporting can perhaps be more effective at rooting out problems. "The proposal--and it is still a proposal-- fails to place sufficient reliance on the effectiveness of existing internal compliance procedures that companies may have."

Mr. Fish said that ACC members support the implementation of a process that punishes those who are responsible for violations, and that the ACC's letter is not intended to be a broad criticism of Dodd-Frank's basic intent. "The concerns that are raised are more about how the proposed rules are intended to apply, and what are perhaps the unintended consequences of those rules."

The letter is being submitted as part of the consultation process set up by the SEC to draft rules for a whistleblowing system mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 922 of the law creates incentives for employees and others to blow the whistle on corporate fraud. Persons who report "original information" about securities violations to the SEC could be entitled to financial rewards. The ACC is concerned the SEC's proposed regime would make those rewards available too broadly.

"Fraudulent misconduct, the bane of good compliance systems, then becomes the gold mine, rather than an impetus for companies with effective compliance systems to address the underlying issues," the ACC's letter states. "The Commission's proposed approach invites employees to focus on timing their report so as to maximize the bounty they'll receive, potentially allowing misconduct to fester."

The legislation is designed to protect whistleblowers from retaliation. Employees who suffer demotion, dismissal, suspension, threats or harassment because they've contacted the SEC will be able to sue employers.

Proponents say the whistleblower provision will make it easier for regulators to discover fraud, and perhaps even unearth the next Bernard Madoff. Opponents deride the provision as a "bounty" that will unfairly put the squeeze on companies and their advisors.

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Re: whistleblowers

Postby admin » Fri Dec 10, 2010 10:51 am

"The law (or bureaucrats......) can be used to keep justice away"

OAG report on Integrity Commissioner – a devastating indictment

The Auditor General, Sheila Fraser, released yesterday the results of her investigation into the the conduct of the government whistleblower watchdog, Integrity Commissioner Christiane Ouimet – an investigation that was prompted by complaints from three of Ouimet's former employees. These findings amount to a devastating indictment of the Commissioner's conduct.

Fraser concluded that the three areas of complaint were founded:

that the Commissioner failed to perfom her mandated functions, showing great reluctance to accept or investigate cases, failing to establish proper procedures for handling cases, and refusing to investigate for reasons that were not supported by the available evidence
that she engaged in inappropriate conduct towards her staff – that she "yelled, swore, berated, marginalized and intimidated" certain of her employees
that she engaged in reprisals against employees, in one case devoting significant resources to a bogus security investigation against a former employee whom she suspected of complaining about her.
Fraser also reported separately to Treasury Board about allegations related to performance pay decisions, and referred to the Privacy Commissioner violations of the Privacy Act by Ouimet that she uncovered.

FAIR's analysis

The importance of Auditor General Sheila Fraser's thorough investigation cannot be overstated. Over the past three years FAIR has repeatedly criticized the inadequacy of the law and the lack of results from Christiane Ouimet's office. We are pleased to see our concerns validated and to understand better why this office accomplished nothing.

It is ironic that this commissioner was a role-model for the types of behaviour that she was employed to help drive out of the public service: misconduct in the performance of her mandate; and reprisals against honest employees who objected to this.

OAG's findings lay bare at least three major failures:

A failure of the whistleblower legislation. It is noteworthy that OAG soon found that it could not even conduct its limited investigation effectively under the whistleblower act and decided to proceed under the Auditor General Act instead.
A failure of the appointments process. This commissioner did not suddenly turn into this type of person when appointed to this office – she had a track record which should have been examined. This is the kind of bad decision that so often results from secretive back-room deals.
A failure of oversight. This appalling situation continued for more than three years before being brought to light. The first complaint to OAG was more than two years ago – yet when Ouimet appeared before parliamentary committees she essentially got a free pass. Committee members asked her few tough questions because they had no idea what was going on.
Described by some as a 'reign of terror', Ouimet's actions over the past three years have had very serious negative consequences.

The worst is that instead of deterring wrongdoers she has emboldened them, since they could quickly see that her office presented no threat to them.

And instead of protecting honest public servants from reprisals, she has terrorized her own employees and abandoned to their fate those who came to her office for help: they soon learned that the safe harbour promised to them was an illusion. There is a human tragedy behind so many of the 228 complaints that she ignored, as we know only too well from the many calls we have received from desperate whistleblowers.

Sheila Fraser's description of the lax and arbitrary manner in which cases were disposed of, and the bizarre reasons given for refusals, suggest a contempt for due process and a complete disregard for the plight of many of these truth-tellers who had been brave enough to come forward.

Some of the details revealed by the report are quite surreal. For example, Ouimet launched an investigation of an employee who had left 6 months before because she suspected (incorrectly) that he had complained about her. In the process she compiled four binders of information on him containing more than 375 pages, circulated at least 50 emails about him, and engaged at least six of her 20 staff in this task. She also attempted to get access to the personnel files of this person (and three others) from previous employers and shared confidential personal information about him with others within and outside the public service.

For those who, like us, wondered what the Commissioner was doing with her time – since her office seemed to be doing nothing – here perhaps is part of the answer.

Further revelations to come

There is a lot more information still to come out about what was going on within this office – and across the federal government.

At least two Parliamentary committees have an obligation to examine and learn from this catastrophe – Government Operations for the operational aspects, and Public Accounts for the legislative aspects. The Public Accounts committee has apparently decided already to call Mme Ouimet to appear before it on Tuesday.

We will hear in due course from the Privacy Commissioner the results of her investigation into Ouimet's actions, and the Treasury Board will be under great pressure to release the results of its investigations into allegations of improper performance pay decisions by Ouimet.

There are also the dozens of public servants who went to this office for help – submitting a total of 170 complaints of wrongdoing and 58 complaints of reprisal. When their cases are re-examined properly there will surely be many more investigations, followed by more exposures of wrongdoing within government departments.

In addition many people who have been silent while waiting for Fraser's findings can now speak out publicly, knowing that their concerns have been vindicated. These include former PSIC employees such as Normand Desjardins (who submitted the first complaint) and Pierre Martel, the acting Commissioner who left within weeks of Ouimet's arrival.

It is noteworthy that, although FAIR has received a steady stream of calls from whistleblowers over the past three years, we never heard from any PSIC staff – until this audit was announced. Now we are in contact with several former employees – some still very fearful and insisting upon complete anonymity – who say that there is yet more more to this story that needs to be told.

Actions required

As recently as October 25, after the OAG audit was announced, President of the Treasury Board Stockwell Day assured the public of his confidence that PSIC "continues to be a safe and independent agency for public servants to bring concerns about wrongdoing in the workplace without fear of reprisals". How was he so badly briefed?

Hopefully Fraser's report will erase the government's past denials that there is a problem, and it will then become possible to have sensible discussions on the Hill about how to fix this mess.

So one of the first things that needs to happen is a frank admission by the government of the magnitude of the problem. Its much-touted "ironclad" protection for whistleblowers, the core of its Accountability Act, is a complete shambles – a bad law compounded by a bad choice of commissioner.

The Liberals also need to avoid turning this situation into a purely partisan debate, since their track record is no better: after promising during their successful 1993 election campaign to clean up government and protect whistleblowers, they reneged and even blocked several private members bills. Only when forced into a corner by the Gomery Inquiry did they introduce legislation – a pitifully inadequate bill that never came into force.

Minister Day's statement today – that he 'assumes' the acting Commissioner will now review all the old files – raises serious concerns.

The current acting Commissioner Joe Friday was Ouimet's long-standing senior legal counsel. In this role he was responsible for reviewing all cases and providing guidance to the Commissioner regarding the legal basis for her decisions. Is it reasonable to expect him to review his own work?

The government must also realize that this review will be a massive task, since it involves essentially re-doing three years of work – the work that this office of more than 20 people was supposed to be doing. This will require an entire team of people, who must not only be competent, but must also be independent of those who did the original work.

Going forward, we see at three major processes that need to be initiated:

The search for a new Commissioner – this time using a public, merit-based appointment process, not the type of secretive back-room process that led to Mme Ouimet's selection and the glowing endorsement of her as the ideal candidate.
A root-and-branch reform of the current deeply-flawed legislation, which was condemned by FAIR and many others even before it came into force. This law creates so many barriers and pitfalls for whistleblowers that most will fare just as badly under a new Commissioner, whose hands will be tied until the law is rewritten.
A complete, thorough and independent re-examination of all the past cases, and thorough investigations of wrongdoing and reprisals where warranted.
There also need to be consequences for those who perpetrated this massive obstruction of justice – and not just the Commissioner. Other senior PSIC staff who willingly collaborated in depriving whistleblowers of due process – and effectively assisted in the cover-up of suspected departmental wrongdoing – need to be disciplined.

This office was created to punish and thus deter wrongdoers, as well as to protect whistleblowers and make them whole after reprisals. These same goals must be pursued in the efforts to clean up the current fiasco. We cannot allow yet another scandal in which the wrongdoers retire in comfort while the truth-tellers have to lick their wounds and adjust to straightened circumstances.

The USA began protecting whistleblowers more than 30 years ago. The UK has had effective protection for truth-tellers for more than a decade. Even former Communist-bloc countries like Bulgaria have made important strides. Meanwhile Canada has been pretending – but doing nothing serious – for 17 years.

This government, with assistance from Mme Ouimet, has brought about a spectacular meltdown of whistleblower protection. On the issue of protecting honest employees, which is central to the entire process of transparency and accountability, we are now the laughing stock of the developed world.

Canadians deserve better.

FAIR looks forward to assisting all sincere efforts to fully understand what went wrong and to develop a way forward. We will work with the government, opposition leaders and any other interested parties to help recover from this body blow to the integrity of our democracy.

We hope that this time around the government will pay attention to the expert advice available from ourselves and others to create a system that’s not just for show, but one that will work to protect the public interest.

David Hutton
Executive Director

About FAIR

Federal Accountability Initiative for Reform (FAIR) promotes integrity and accountability within government by empowering employees to speak out without fear of reprisal when they encounter wrongdoing. Our aim is to support legislation and management practices that will provide effective protection for whistleblowers and hence occupational free speech in the workplace. FAIR is a registered Canadian charity.
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Re: whistleblowers

Postby admin » Wed Oct 06, 2010 11:46 pm

..........to follow up on the posting previous, that it "is thousands of times harder to tell the truth than it is to continue a lie".

This seems to explain some of our economic crisis of the moment. Our decline in the economy, perhaps in ethics and morality to somewhat of an "everyman for himself" mentality. A decline in our political integrity to an "every politician bought and paid for by corporate lobbyists" reality.

I started to notice it when looking into multi, multi million dollar financial scams. Or even just semi legal but hugely unethical skims by some of our best and most "trusted" financial institutions. I found it rampant. Standard Industry Practice.

So well entrenched and so well supported that it was fed and condoned by the regulators, who themselves were in on the money action. I am talking Canada here kids, and let me tell you this came as a shock to my sensibilities and my OH Canada upbringing. I was taught that this kind of thing was expected in third world countries, but that we were far too civilized to succumb. I was wrong. We simply did a better job of keeping it quiet. Very British, don't talk. Loose lips sink ships and all that.

I now am at the point of concluding that big financial crime is a sure winner. If you want to have crime pay, and never involve police or any agency of the government powerful enough to lift a finger against you, just commit financial crimes in excess of $100 million. Scam, skim, churn, burn, whatever your particular preference. Do it in excess of $100 million (that is only $3 per head in a country like Canada) and there is not a police force nor a prosecution in the country that is strong enough to even consider a prosecution. I could be wrong, and I am patiently waiting for someone to send me the example where there has been ONE prosecution over that level. Meanwhile I can add up a trillion dollars worth of damage (done by professionals) during my career. That is about ten thousand crimes in the 100 million dollar range.

I am no longer a believer in "crime does not pay" or the good guys always win. Those are simple fairy tales we were raised with. I today think it is more likely that the ratio of dishonest to honest is more likely in the nature of tens of thousands to one. I am only guessing. I have nothing meaningful to go by except the dollar value I can add up in money taken or skimmed from rightful Canadian investors, by righteous Canadian financial professionals. Some of these figures are posted elsewhere on this site on topic "FINANCIAL CRIME MORE THAN ALL OTHER CRIMES".

I sure hope I am just exaggerating about this.
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Re: whistleblowers

Postby admin » Wed Oct 06, 2010 11:23 pm

Stew Webb Savings & Loan Whistleblower faces federal charges.jpg
Telling the truth verses telling a lie........

I have learned that it is perhaps orders of magnitude more painful for one to tell the truth in difficult situations than it is to tell lie.


Telling the truth (lets look at whistleblowing) might be in the public interest, and might be intended to help the public, but there is no quantifiable return nor often even simple gratitude for making this move. However, telling the truth when it reveals damage or danger to the public interest is feared, avoided and resented by those who are hurt by the revealing of this truth.
Corporations, management, bureaucrats, whomever, who live, breathe, eat, sleep and profit from keeping things exactly the way they are, will be very, very, VERY upset if you take away some of the secrecy, power, money or moral high ground on which they operate. Even if they are the ones doing the harm and you are the one telling the truth.

They will come at you like a hive of angry bees, intent on using every possible technique to ruin and destroy you or your credibility. Lives broken is often the result.

All this activity, this “bee hive” of attacking, dismissing, deflecting, discrediting will come your way if you tell the truth in some difficult situations. And there can be thousands, no, hundreds of thousands of people who depend and rely on the status quo. I mean literally depend and rely on the status quo to eat and to feed their families. They can look away and do perhaps any injustice if it means they can continue to support those families. (see Stanley Milgram Yale University Shock Obedience experiments, circa 1960's) I worked in the largest bank owned brokerage in Canada, and our entire workforce, including the bank, was 40,000 when I worked there, and closer to 60,000 employees today.

Add in the outside suppliers, accountants, lawyers, regulators, politicians who relate, rely or revolve around the power and money that spins off of this large a corporation and there is enough human will involved to totally ruin ones life. Add in the other four or five top banks, and their own brokerage firms who have a nearly identical business model, or mode of operation, and if you are criticizing one of them, you will find yourself taking on them all. You could find yourself up against the combined will of one million people who are dependent on that one industry. Once million people who also know the truth, but know how much easier it is to continue the lie than it is to tell the truth.

Think of how it affects your financial health. How about your physical health when it involves industries that profit from damaging that health. How about being a truth teller at the FDA, talking about growth hormones in dairy milk? A truth teller from the FBI telling of failed investigations prior to 3000 people dying in 911? How about your mental health when you are a rocket scientist at Morton Thiokol who argued that space shuttle Columbia should not be launched under cold conditions? How many died? Literally thousands of such examples exist to remind and reinforce just how much more painful it is to tell the truth, than it is to continue the lie.

Perhaps this is why our economy is suffering, our politicians appear to be bought and paid for by lobby groups and other fund raising interests. Our north american economy is looking less and less like the world leader and starting to appear as a laggard. Is it temporary or permanent? Your guess as good as mine, but that is not how this article started out. It started out just to remind myself just how difficult it is to find the truth. Remind myself to write it down for the benefit of those who follow this path. And how much easier it is to go with the lie, the easy story, the favorable spin. Thousands and thousands of times easier.

For those of you thinking of acting on your conscience and speaking out about something bad, something dangerous or costly to the planet or the public interest, remember this. I am not saying don’t speak out. By all means do speak out, or we are doomed. Just know that by speaking out, the costs to you and your life will perhaps be greater than anything you will have ever imagined prior to embarking on this path.

You will emerge a completely different person coming out the other end of this tunnel, much stronger, provided you make it out the other end alive. My thoughts, hopes and prayers are with you.

Larry Elford
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Re: whistleblowers

Postby admin » Mon Sep 20, 2010 9:04 pm

The ProPublica Blog
Exec Who Blew Whistle on Moody’s Ratings Sues for Defamation
by Marian Wang
ProPublica, Sep. 13, 5:44 p.m.3
http://www.propublica.org/blog/item/exe ... defamation

Raymond W. McDaniel, Chairman and CEO of Moody's Corporation (Photo by Mario Tama/Getty Images)

A former executive at Moody’s Investors Service filed a civil suit in federal court today in Manhattan, alleging that the ratings agency defamed him after he flagged problems with their ratings. (Read the full complaint.)

During his time at Moody’s and after his employment there ended in 2009, Eric Kolchinsky, the plaintiff, said he raised concerns—several times to his employers, then to congressional investigators, and finally to a House panel last fall—about securities fraud and inflated ratings at Moody’s.

According to the complaint, Kolchinsky’s concerns were publicly countered by Moody’s with attacks and attempts to discredit him. In September 2009, a Moody’s spokesman told the Wall Street Journal that Kolchinsky “refused to cooperate” with an internal investigation. A month later, The Wall Street Journal quoted CEO Raymond McDaniel calling his allegations “not supported by the facts” and “without merit.”

“Moody’s repeatedly and publicly published falsehoods about Mr. Kolchinsky, the tone and purpose of which was to cast dispersion [sic] on his credibility as a ‘whistleblower’ and to disgrace and ridicule his work and reports,” the complaint reads. “Moody’s claims were intended to make Mr. Kolchinsky seem like an unprofessional, disgruntled employee who files claims and performs faulty analysis, based on unmeritorious statements.”

The suit asserts that the attacks came despite an acknowledgement under oath from a Moody’s executive that the company had, in fact, adopted some of Kolchinsky’s ratings-methodology recommendations.

Responding to the suit, a spokesman from Moody’s told the Journal, “We are confident Mr. Kolchinsky has no basis for any suit against Moody’s.” We’ve also put in a call to Moody’s for their response. Moody’s has said in the past said that “Moody’s has a strict non-retaliation policy, and Mr. Kolchinsky was not disciplined or suspended because he raised complaints.”

Kolchinsky is seeking $15 million in damages, plus legal fees.

As we’ve noted, Moody’s recently dodged enforcement action from regulators at the Securities and Exchange Commission, which had earlier warned the firm of the likelihood of a fraud lawsuit for failing to fix what it knew was an erroneous rating.

We’ve also noted that faced with the financial reform bill, Moody’s and other credit ratings agencies have warned bond issuers not to use their ratings in official documentation for bond sales, because if those ratings are included and turn out to be incorrect, agencies could be held liable. The ratings agencies contend that ratings are their best predictions of the future, and they shouldn’t be held liable if those predictions don’t pan out.

The big financial firms also played some role in the prevalence of inaccurate ratings. Emails released by congressional investigations earlier this year how banks sometimes pressured ratings agencies to give good ratings to lousy securities, and how agencies—fearing of losing market share—would often give in.
http://www.propublica.org/blog/item/exe ... defamation
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Re: whistleblowers

Postby admin » Thu Jun 10, 2010 8:45 am

Note from one whistleblower to another after ten or more years of speaking up about abuses of others. One whistleblower has been fired from more than one job, jailed, fined and demoralized for more than a decade, the other has had to retire and try to rebuild a life from scratch.
good talking to you Joe

I know a little bit about how you might be feeling. I have certainly gotten my own level of disappointment with my journey's and struggles and while I have not paid the price that you have (gone to jail for your beliefs) I have had my trials.

It helps to chat about it once in a while, so for that I thank you. I also applaud your tenacity and persistence, and while I do not always agree with your communication style, I have to say you are one of the most "stick to it" guys I would choose if I needed a defender. that is a good thing.

We both either have a "stuck" switch somewhere inside our heads which will not let us "let go", or else we are fighting for what is "right", and that is why we will not let go. Perhaps a bit of both. I have done a fair amount of research on both and I can see how I have been affected by what I have gone through.

So the bad news is that there is a price to pay for being in a fight for what we think is right. I did not know this when I started, I naturally assumed I was bulletproof way back when. What I have learned in the meantime is that if a person spends years and years inside or witness to very "disturbing" events, it is fairly easy to become "disturbed". I have been there.

Being constantly "disturbed" by outside events or by what we hold inside can and does lead some people to being "distressed", or stressed, and a constant or near constant state of stress has been known to chemically alter (or physically alter or both) a persons brain. It is thus quite easy to find symptons like depression, "dis"ease, and all the hundreds of other effects that begin to haunt people who have lived under stress for too long. (depression, addiction, aggression, self sabotage, incarceration, institutionalization, and on and on and on)

By this time, I hope you realize that I am writing this more for myself Joe, and not trying to force feed you on anything. It is helping me to write it down, and I will post it under "whistleblowers" at http://www.investoradvocates.ca I hope it might help others in future who are going through their own challenges.

I found an interesting article from the Mises people, they are a group who follows the "Austrian School of economic theory" for those who don't know. It is "old school" theories and philosophies, meaning they look back to the roots of some of our problems and I think they do a pretty good job of explaining things. The article pasted below mentions how we formed some of our "abusive" norms of taking advantage of people for economic gain. I hope you like it. We will talk again Joe. Keep the faith.

Mises Daily

Building the Ruling Elite
by Murray N. Rothbard on June 10, 2010
[This article is excerpted from An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith. An MP3 audio file of this article, read by Jeff Riggenbach, is available for download.]

The system of mercantilism needed no high-flown "theory" to get launched. It came naturally to the ruling castes of the burgeoning nation-states. The king, seconded by the nobility, favored high government expenditures, military conquests, and high taxes to build up their common and individual power and wealth. The king naturally favored alliances with nobles and with cartelizing and monopoly guilds and companies, for these built up his political power through alliances and his revenue through sales and fees from the beneficiaries.

Neither did the cartelizing companies need much of a theory to come out in favor of themselves acquiring monopoly privilege. Subsidy to export, keeping out of imports, needed no theory either: nor did increasing the supply of money and credit to the kings, nobles, or favored business groups. Neither did the famous urge of mercantilists to build up the supply of bullion in the country: that supply in effect meant increased bullion flowing into the coffers of kings, nobles, and monopoly export companies. And who does not want the supply of money in their pockets to rise?

Theory came later; theory came either to sell to the deluded masses the necessity and benevolence of the new system, or to sell to the king the particular scheme being promoted by the pamphleteer or his confreres. Mercantilist "theory" was a set of rationales designed to uphold or expand particular vested economic interests.

Many 20th-century historians have lauded the mercantilists for their proto-Keynesian concern for "full employment," thus showing allegedly surprising modern tendencies. It should be stressed, however, that the mercantilist concern for full employment was scarcely humanitarian. On the contrary, their desire was to stamp out idleness, and to force the idle, the vagrant, and the "sturdy beggars" to work. In short, for the mercantilists, "full employment" frankly implied its logical corollary: forced labor. Thus, in 1545, the "sturdy beggars" of Paris were forced to work for long hours, and two years later, "to take away all opportunity for idleness from the healthy," all women able but unwilling to work were whipped and driven out of Paris, while all men in the same category were sent to the galleys as slave labor.

The class basis of this mercantilist horror of idleness should be instantly noted. The nobility and the clergy, for example, were scarcely concerned with their own idleness; it was only that of the lower classes that must be ended by any means necessary. The same is true of the privileged merchants of the third estate. The thinly veiled excuse was the necessity of increasing "the productivity of the nation," but these classes constituted the ruling elite, and such forced ending of idleness, whether on public works or in private production, was a boon to the rulers. It not only increased production for the latter's benefit; it also lowered wage rates by adding to the supply of labor by coercion.

Thus, at the meeting of the states general, the parliamentary body of France, in 1576, all three estates united in their call for forced labor. The clergy urged that "no idle person … be allowed or tolerated." The third estate wanted "sturdy beggars" to be put to work, whipped or exiled. The nobles urged that "sturdy beggars and idlers" be forced to work and whipped if they refused to comply.

The same Estates-General made their special pleading all too painfully clear in the matter of protective tariffs. The estates called for the prohibition of imports of all manufactured goods and the export of all raw materials. The purpose of both measures was to throw a wall of monopoly protection around domestic manufactures and to force producers of raw materials to sell their goods to those domestic businesses at an artificially low price.

The excuse that such measures were necessary to "keep bullion" or money "at home" would seem patently absurd to any objective person. For if French consumers are to be prevented from buying imports in order to safeguard "their bullion," what might happen otherwise? Was there really any danger of Frenchmen sending all their bullion abroad and keeping none for themselves? Clearly, such an event would be absurd, but even if it happened — the worst-case scenario — there is an evident hard maximum limit to any outflow of bullion from home. For where are the consumers bent on further importation going to get more bullion? Clearly, only by exporting other products abroad.

"Mercantilist 'theory' was a set of rationales designed to uphold or expand particular vested economic interests."
Consequently, the "keeping money at home" argument is patently fraudulent, whether in 17th-century France or in the 20th-century United States. The Estates-General were interested in protecting certain French industries, period.

The "keeping money at home" argument was also a convenient stick to beat foreign businessmen or financiers who could outcompete natives. Thus the prospect of German bankers and Italian financiers flourishing in France gave rise to paroxysms of fury at the "ill-gotten gains" of foreigners, taking money out of the country, fury that was of course fed by the typically mercantilist egregious "Montaigne fallacy" that one man's (or one nation's) gain on the market was ipso facto another man's (or nation's) loss. These disgruntled Frenchmen often suggested that foreign financiers be expelled from the country, but the kings were typically too bogged down in debt to afford such counsel.
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Re: whistleblowers

Postby admin » Tue Jun 01, 2010 7:35 am

harveyschachter_1119bio5.jpg (20.49 KiB) Viewed 9023 times
Harvey Schachter

Speaking truth to power
Watching Montreal Canadiens defenceman Hal Gill block shots in the early rounds of the hockey playoffs led consultant Patrick O’Neill to think of the importance of speaking truth to power in the workplace. That seems a stretch, but he notes in his Extraordinary Conversations newsletter that blocking shots is a thankless task, requiring bravery, anticipation, and timing – as does speaking truth to power. It is also a sign, as Coach’s Corner authority Don Cherry decrees, that you have your heart in the game, a prerequisite for courageously speaking up at work.
Mr. O’Neill notes that good communication, as defined by cultural anthropologist Angeles Arrien, requires the right timing, right context and right content, so that’s similar as well.
Finally, remember that after you have made your case and a decision has been made, you must move on. “Unless crimes are being committed or lives are in jeopardy, you have done your duty by speaking truth to power,” he advises.

http://www.theglobeandmail.com/report-o ... le1586813/
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Re: whistleblowers

Postby admin » Sat May 29, 2010 8:38 am

I found this and posted it not because this lady is a true whistleblower, but that she has taken the high road and in doing so it has set herself apart and her relationship in jeopardy from her peers. It is a subtle difference but it illustrates just how risky it can be to step or speak against the crowd, even when one is trying to do the right thing. It reinforces my worry that Canada is too deeply infected with conflicts of interest and corruption. Read on.......

“Right now, she is not very popular in our caucus,” said the Liberal source. “It’s hard when you go against the grain, especially when it’s the right thing to do.”

Friday, May 28, 2010 6:15 PM Globe and Mail
Rookie Liberal gets cold shoulder for coming clean on expenses
Jane Taber

There were some smirks and sniffs as rookie Liberal MP Michelle Simson told caucus colleagues this week that sometimes it’s easier to do the right thing. It was not a message her colleagues enjoyed hearing.
Ms. Simson is the first MP to take the bold step of publicly revealing her MP expenses. Last year, with little fanfare, she posted the information on her website, fulfilling an election campaign promise to her constituents that she would show them how she spent their money.
But with the issue blowing up all over the Hill after the secretive all-party Board of Internal Economy decided to block the Auditor-General from looking at MPs’ spending, Ms. Simson has suddenly become the poster child for political accountability and transparency.
While she is being feted by Canadians who like what she did, some caucus colleagues are giving her the cold shoulder.
That’s because, according to one Liberal caucus source, some believe her actions are making them look bad.
Behind the closed doors of caucus this week, however, Ms. Simson was not grandstanding. Neither was she trying to suggest she was better than her colleagues.
She simply wanted other MPs to know that it’s not scary to post expenses; when she did it she suffered no consequences. In fact, she has said that not one of the more than 100 people who sent her e-mails in response commented on how she spent the money. The comments were congratulatory.
Rather than praising her and encouraging other MPs to follow her lead, however, Liberal Leader Michael Ignatieff told members not to do what she did.
He told his caucus to stick together and not to be mavericks on this issue. He is concerned that different MPs could post different expenses, creating the perception of inequities.
“Right now, she is not very popular in our caucus,” said the Liberal source. “It’s hard when you go against the grain, especially when it’s the right thing to do.”
Doing the right thing is not a stretch for Ms. Simson.
The 56-year-old MP from Scarborough Southwest – who lives in Markham and was appointed the Liberal candidate by former leader Stéphane Dion in an effort to find gender balance – has a background in banking.
She worked for a bank before ending up in the auto-leasing business; she met her husband (they’re celebrating their 35th wedding anniversary on Monday) at the bank; their 29-year-old son works for the Bank of Nova Scotia.
“It just didn’t come as anything strange,” she says about being accountable, having had to endure random internal audits when she worked at the bank.
“They came in and it was a surprise. They’d come after hours, show up with black bags and they would rip through everything. And so I was used to it,” she recalled in an interview this week.
During the 2008 election campaign, with government spending and waste an issue in her riding, Ms. Simson promised that if she was elected she would open her books.
“Once you are elected there are very few things that you really do control as an individual MP,” she says. “And I said [to voters], but the one thing I can tell you is I’ll be accountable ... you’ll see where I spend my money.”
But Ms. Simson knows that any time “you put yourself out there” there are consequences.
“I’m sure that there may be colleagues from various parties that maybe weren’t enamoured with what I did,” she says. “But frankly, I couldn’t afford to really worry about that because I answer to the constituents and it’s taxpayers money.”
Over the next few days she is planning to post numbers for this year. And despite her leader’s edict, she is having an influence. Two of her Liberal colleagues this week released detailed breakdowns of their expenses.
“We need more people like that,” said one of her colleagues about Ms. Simson.
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Re: whistleblowers

Postby admin » Mon Mar 29, 2010 9:44 am

* 28 Mar 2010
* Ottawa Citizen
The man who outed Madoff

Whistle-blower began to wonder if $65-billion fraudster was untouchable

Blank stares, disdain and tears. Harry Markopolos encountered all three during his nineyear struggle to convince the U.S. Securities and Exchange Commission that Bernard Madoff ’s returns were mathematically impossible.

SEC officers didn’t grasp the numbers until the Ponzi scheme had swelled to $65 billion, as Markopolos shows in No One Would Listen, a disturbing firsthand account of his quest to expose one of the most powerful men on Wall Street.
Markopolos, a self-described “proud Greek geek,” is a former chief investment officer at Rampart Investment Management in Boston. His investigation began in 1999, when a colleague learned of Madoff ’s investment returns and urged Markopolos to replicate his strategy, he writes. Markopolos soon concluded that the numbers didn’t add up: “There’s no way this is real,” he recalls telling his colleague. “This is bogus.”

So began his surreal journey into the warped world of Bernie Madoff, the broker-dealer who was producing too-good-to-be-true returns of one per cent to two per cent per month. Markopolos’s odyssey pitted him against bosses who urged him to match Madoff ’s results, against investors who didn’t want to hear the truth, and against SEC staffers who either didn’t listen or couldn’t understand what they heard.

By the time Madoff was arrested on Dec. 11, 2008, Markopolos had reported his concerns to the SEC five times and had begun to wonder if Madoff was untouchable. Fearing that he and his family were in jeopardy, he packed a Smith & Wesson and even considered killing Madoff if need be, he says.

“ If he contacted me and threatened me, I was going to drive down to New York and take him out,” Markopolos writes.

Markopolos can come across as paranoid but when, in an interview with The Sunday Times of London, he pointed to the book’s map showing where Madoff ’s money was going, it’s easy to see why he felt nervous. With his American business at saturation point, Madoff had his eyes on Russia and Asia. Markopolos believes money from drugs and gangs washed through Madoff accounts.

“ Prison is the safest place for him,” Markopolos said. “He is in jail to protect him from his investors” — although it emerged recently that Madoff had been beaten up at the North Carolina prison where he is serving a 150-year sentence.

The truly shocking thing about this book is its cumulative effect, not any individual revelation. Step by step, Markopolos exposes the dangerous “mismatch in skills” between SEC lawyers and the market pros they regulate.

“Sending lawyers to oversee capital markets professionals is like sending chickens to chase foxes,” he says with characteristic bravado.

Time after time, Markopolos offered SEC officials mathematical evidence that they seemed ill equipped to comprehend. In May 2000, for example, Markopolos says he met with a senior SEC enforcement official in Boston to explain why Madoff couldn’t be making money, as claimed, with a stock-and-options trading strategy known as a split-strike conversion.

All Markopolos got for his trouble was a blank look. “It very quickly became clear he didn’t understand a single word I said after hello,” he writes.

In November 2005, Markopolos called another senior SEC official, he says, and asked if there was anything in his third submission that she didn’t understand. She seemed insulted and in a hurry to get off the phone, he says.

“Do you understand derivatives?” Markopolos asked.

“ I did the Adelphia case,” she replied. Well, Markopolos responded, that case involved an accounting fraud. A derivatives fraud, he said, requires a higher level of financial sophistication.

Those two episodes were previously reported in a damning 457-page review by SEC Inspector General H. David Kotz, who said the agency missed at least six opportunities to spot Madoff ’s fraud. They take on greater significance here, as Markopolos lays out the market realities that SEC off icials either didn’t understand or ignored.

For one SEC off icial, the math may have sunk in only after Madoff ’s arrest. During a meeting in February 2009, the SEC’s deputy inspector general, Noelle Frangipane, asked Markopolos to quantify how much money would have been saved if the SEC had listened to him in May 2000. His answer — $43 billion — was followed by a loud thud, he says.

“I turned to Noelle,” Markopolos writes. “Her head was down on the table and she was sobbing uncontrollably.”

The other hurdle for Markopolos was of course Madoff ’s reputation, both at the SEC and among investors. Madoff was “the ultimate insider,” Markopolos says. “I was the bothersome outsider. I was some quant from Boston nobody had ever heard of.” It probably didn’t help that Markopolos revels in being geeky, tells off-colour jokes and takes pride in being politically incorrect.

One money manager who ignored red flags about Madoff was René-Thierry Magon de la Villehuchet of Access International Advisors LLC, the man who f irst alerted Markopolos and his colleagues to the fact that Madoff was managing money.

Though they warned de la Villehuchet of their suspicions, he wouldn’t listen, Markopolos says. He was later driven to suicide by his firm’s Madoff-related losses, his brother said. He was found dead in his Madison Avenue office, with his arms and wrists slit. A box cutter and pills were nearby.

Markopolos has no time for those who argue that Madoff ’s honest investors should have realized that their returns were too good to be true.

“ Those people didn’t know. They’re not financial people. Madoff preyed on them. He was evil. He would go to funerals, put his arm around the widow and promise to take care of her. He’s a pathological liar, incapable of telling the truth,” he said.

Markopolos now heads an independent financial fraud investigation firm. He is currently investigating America’s giant healthcare and pharmaceuticals industry. “Those guys make Madoff look small time,” he said.
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Re: whistleblowers

Postby admin » Sat Mar 27, 2010 9:58 am

From GATA:

Additional Statement by Bill Murphy, Chairman
Gold Anti-Trust Action Committee to the U.S. Commodity Futures Trading Commission
Washington, D.C., March 25, 2010

On March 23, 2010, GATA Director Adrian Douglas was contacted by a whistleblower by the name of Andrew Maguire. Maguire is a metals trader in London. He has been told first-hand by traders working for JPMorganChase that JPMorganChase manipulates the precious metals markets, and they have bragged to how they make money doing so.

In November 2009 Maguire contacted the CFTC enforcement division to report this criminal activity. He described in detail the way JPMorgan Chase signals to the market its intention to take down the precious metals. Traders recognize these signals and make money shorting the metals alongside JPM. Maguire explained how there are routine market manipulations at the time of option expiry, non-farm payroll data releases, and COMEX contract rollover, as well as ad-hoc events.

On February 3 Maguire gave two days' warning by e-mail to Eliud Ramirez, a senior investigator for the CFTC's Enforcement Division, that the precious metals would be attacked upon the release of the non-farm payroll data on February 5. On February 5, as market events played out exactly as predicted, further e-mails were sent to Ramirez while the manipulation was in progress.

It would not be possible to predict such a market move unless the market was manipulated.

In an e-mail on February 5 Maguire wrote: "It is common knowledge here in London among the metals traders that it is JPM's intent to flush out and cover as many shorts as possible prior to any discussion in March about position limits. I feel sorry for all those not in this loop. A serious amount of money was made and lost today and in my opinion as a result of the CFTC's allowing by your own definition an illegal concentrated and manipulative position to continue."

Expiry of the COMEX April call options is tomorrow, March 26. There was large open interest in strikes from $1,100 to $1,150 in gold. As always happens month after month, HSBC and JPM sell short in large quantities to overwhelm all bids and make unsuspecting option holders lose their money. As predicted by GATA, the manipulation started on March 19, when gold was trading at $1,126. Last night it traded at $1,085.

This is how much the gold cartel fears the CFTC's enforcement division. They thumb their noses at you because in more than a decade of complaints and 18 months of a silver market manipulation investigation nothing has been done to stop them. And this is why JPM's cocky and arrogant traders in London are able to brag that they manipulate the market.

This is an outrage and we are making available to the press the e-mails from Maguire wherein he warns of a manipulative event.

Additionally Maguire informed us that he has tape recordings of his telephone communications with the CFTC, which we are taking the appropriate legal steps to acquire.

* * *
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Re: whistleblowers

Postby admin » Sat Mar 13, 2010 10:24 pm

Death of a saleswoman
By Kem Coroi
Introduction — A Coroner’s Report

Death is never a pleasant subject, no matter how tragic or ennobling it might be to those left behind to contemplate its significance. There are occasions, however, in which it is in the public interest to investigate into a death, to determine its cause or the contributing causes and to make recommendations for the prevention of future deaths.

So it could be said that this is a coroner’s report, an inquest into a wrongful death, although, mercifully, not in any literal sense. The subject of this piece has not died physically, although the hardships she has had to endure would have led many a weaker soul to the brink of suicide. But death has many faces, and the one which will present itself, if not dire, necessarily, is an ugly one nonetheless: the death of a promising career.

The career which has passed away belonged to a stockbroker, or Investment Advisor (IA) as brokers are known in the industry, at HSBC Securities in Victoria, British Columbia. As will be evinced, it is difficult to point to any one specific cause of death, but there is no question that it was a homicide. This IA’s career was cut short, gunned down, stabbed in the back and garrotted with piano wire by the financial mafia, a.k.a. the HSBC Group and its henchmen at the British Columbia Securities Commission (BCSC).

Signs of the Times

No thoughtful person can deny that we are living in a time of corporate and government corruption which, if not unprecedented, is certainly being exposed with greater frequency than ever before. Graft and cronyism might be the grease on the wheels of commerce, but society seems to know when the grease is threatening to leave too large a trail. Which is to say that there is business which is dubiously conducted in the dark, with a black bag and a furtive glance, as it were, and then there is corporate and state criminality. Only a moral cretin can fail to see the distinction.

It has been said that the law is the handmaiden of justice. It is equally true—and glib, perhaps—that corruption is the handmaiden of death. Many of our institutions have become distinctly malodorous, unable to mask the stench emanating from out their pores as though from a rotting corpse. The federal government alone provides a multitude of examples, from “Sponsorgate” to “The Grand-Mere Affair”. All but forgotten is the “Billion Dollar Boondoggle” at the Ministry of Human Resources and Development, and the ill-conceived money pit, which passes for a national gun registry. Ad infinitum et ad nauseum.

But these examples belie that it is in fact the nature of corruption to be insidious; generally, it tends to avoid exposing itself to the light. Indeed, if libertarians are to be credited—and their prescience in this regard cannot be gainsaid—the state and its institutions are even more corrupt than the most reckless averments of the most pointy-headed conspiracy theorist could have suggested. We need not look far to find a case study, which would illustrate this assertion; indeed, would show it to be a truism. Like the ether it is unperceived and yet it is all around us. It does not even have a name, or rather, its name is Legion; it is generally referred to under the rubric “the financial services industry”.

There are many indicia of institutional corruption: turning a blind eye can be one, padding invoices can be another. They can be sins of omission as well as of commission. The hallmark of corruption, however, is unaccountability. In the financial services industry this unaccountability is built right into the system, as it is whenever the government cedes a portion of its authority to an unelected administrative body. In exchange for expertise, some professions are given the right to regulate themselves. Often, however, these deals made on behalf of electors assume the character of pacts entered into with the devil. The notion that these regulatory agencies, staffed by members of the profession they purport to regulate, are the legitimate guardians of the public trust and will in every instance act with utmost good faith, has become so naïve a point of view as to be laughable.

The case study, which is the subject of this coroner’s report, proves in spades that our trust in the financial regulators is misplaced. Our case is of an honest stockbroker (IA) who acquiesced in the death of her career for the sake of a client. She remains the only known case of an IA with the intestinal fortitude to clash with the financial mafia which controls the banking and investment industry. For the purposes of this report, and out of respect for the demise of her career, only her first name will be used in what follows: Marcia.

An Honest Broker

Marcia came into the brokerage business through the side door, as it were, of the HSBC Group, a British-owned banking and investment conglomerate whose head office for its Canadian operations is located in Vancouver. Her career in the financial services had already been a lengthy one; first she was a banker, then a Certified Financial Planner (CFP), both for many years. She was initially hired by HSBC Bank as a Manager of Investment Services (MIS), the scope of her duties encompassing financial planning and mutual fund sales to customers of the bank’s branch at Fort Street in Victoria.

Less than two years into her tenure, however, the powers that be (and at the HSBC Group these were said to reside in Olympian aloofness somewhere in London, England) determined that some drastic cost-cutting measures were in order. Profit is one thing, after all; maximizing profit is often quite another. Marcia was duly informed that the MIS program was to be phased out; she and her colleagues would have to become qualified as Investment Advisors (I.A.s) if they wished to remain employed with the Group. For their parts, the existing brokers were ordered to obtain their CFP licenses, although the alacrity with which this order was enforced left much room for suspicion. It seemed to be primarily those in the MIS program who were on the chopping block. The explicit goal of this agenda was to reduce the number of employees performing investment services in one form or another by two thirds.

The means chosen to achieve this end naturally involved various types of attrition. The requirement that I.A.’s must also be CFPs was an example of this; there was no sound business reason which could be gleaned from joining two disparate professions in one person. It was simply a way of culling the herd, and in the process, perhaps, instilling a sense of ruthless ambition in those who would be fortunate enough to emerge from the probationary period with jobs.

Ironically, it was this very requirement which would come back to bite the executive at HSBC Group in the backside in the months to come.

Many in the MIS program were not even allowed the opportunity to meet the new stringent educational criteria; the branch managers, whose own interests were at stake in the restructuring, simply pushed them out. One MIS or two refused to play the game at all and simply moved on under his own steam.

Her bosses probably believed that Marcia would be one of those who would fail to make the cut. She had already evinced a certain independence of mind, and would not be likely to play a game that was rigged from the outset. That someone might enjoy being a broker for the love of the job was beyond the ken of the likes of HSBC Group’s executive. Unscrupulousness in the pursuit of high standards can be controlled by such simple stratagems as money. Incorruptibility, on the other hand, is a perpetual wild card. But that is to give too much credit to HSBC’s honchos. It is doubtful, at this point, that Marcia had been earmarked for summary dismissal. It is more likely that she was not given a second thought.

Certainly she was naïve in many ways. She assumed, for instance, at least in the beginning, that there was nothing whimsical in the resolutions coming down from the executive at HSBC Group. Just as her stock market acumen would be underestimated, she would fail to comprehend for some time the allure of the profit motive on the part of her bosses. Money was venerated in these circles like a god.

The sanctity of money to these people became clear to her for the first time at the “graduation” meal she and her fellow rookies were treated to upon completion of the ninety day training period. The handful of planners who had survived the ordeal were lauded by management as the “cream of the crop”. In other words, just to make it as far as they did meant they had the potential to make a thirsty band of cutthroats indeed.

But Marcia was always cognizant of not fitting in entirely, that she was unlike most of the other newbies. For one thing, she seemed to be the only one to make it through training with her conscience still intact. She was sure, either owing to greed or to cowardice that not one of her colleagues would fail to sacrifice his soul on the altar of profit if the occasion ever presented itself. On the other hand, she genuinely enjoyed being a stockbroker. She resolved, therefore, that though she had been thrust into a pit of snakes she would take a full measure of satisfaction in providing quality service to her clients.

Always adept at getting to the essences of things, she was astute as well in quickly determining what would be required of her in her new profession. She found that ethically she could not go far wrong if she subjected all the advice she gave her clients to the “mother test”. This meant that with every trade she asked herself if she would follow the same course if it were her mother’s money she was handling. She accorded the mother test the highest esteem as her most trustworthy guide, and which summed up for her the CFP code of ethics as concisely as the golden rule encapsulates the Ten Commandments.

Idealism Confronts Reality

It was a daunting task, like Serpico’s in staying off the take, keeping herself free of the taint of dishonesty with which all the veterans at HSBC Securities seemed to be marked. During her probationary period, for instance, she often heard the phrase “churn ‘em and burn ‘em” used to describe the ordinary business practices of the established IAs at her firm. For the uninitiated, “churning” is a term of art which describes the practice of making trades on a clients’ account for no other purpose than to earn more commission. There is uniform disapproval of churning, not only by the regulators, but by the firms themselves. There is also, however, widespread disingenuousness in this regard. Every firm uses a “grid” system for determining an IA’s rate of compensation, which all but ensures that those who earn the highest commissions from their books of business, and if it is by churning, so be it, are most amply rewarded.

Marcia and her fellow rookie IAs found it humorous, in a grim sort of way, that the established brokers at HSBC Securities seemed incapable of earning an honest living. She had not yet realized that the system itself virtually mandates a certain degree of corruption. One is reminded of a line delivered by Denzel Washington in “Training Day”: “You gotta have a little dirt on you for anybody to trust you.” This certainly describes the mores of those with whom she would now be sharing offices; and churning was merely a symptom of a larger disorder, a more virulent disease. The entire industry was afflicted.

It is worthy of note that it was the regulators, not the firms, who established the ninety-day training criterion for rookie IAs. The firms were duty bound on pain of sanctions to provide this training, and they fulfilled their duties as wholeheartedly as if they were forced to eat dung. Those requirements, which were deemed too burdensome, such as having a fledgling IA “shadow” a veteran broker, were simply ignored.

The collective attitude of the established brokers towards compliance issues, and by extension towards customer service, was beyond cavalier. One of these veterans used to make the preposterous claim to prospective clients that “he never lost money for his clients.” Nor was the office manager any more ethical. The wealthiest client whom Marcia had brought over from the bank was not only stolen from her, but her manager then proceeded to lose money on company shares he had purchased on the clients’ account that he, the manager, had been expressly instructed not to buy.

When a fledgling IA is still in training she is prohibited by the securities regulations from making trades on her own. Consequently, a day came when Marcia was obliged to have her manager process some mutual fund purchases. Rather than simply abide by the clients’ instructions he manipulated the purchases in order to “earn” for himself a higher commission. In other words, he churned them. Marcia was finding the taste being left in her mouth by the brokerage business was becoming more unsavoury by the day.

It would be fair to describe the regimen the rookie IAs had just undergone as more a baptism by fire than a ninety day training period. It seemed a little rich, moreover, to be thought of as “the cream of the crop” simply for having survived the ordeal. But Marcia emerged from her probation only to have to endure still more tribulations. All the established IAs eschewed mentoring as nothing more than a species of babysitting; they undertook no activity, which did not have a dollar sign at the end of it.

So her expectations were already low when the branch manager moved on. The firm continued to do business with no one running the office at all for several weeks, a further infringement of securities regulations. With no one supervising the rookies at the Victoria office, Marcia and the others were instructed to contact the “acting” manager in Vancouver if they ever required assistance. When she sought to take this advice, however, her telephone calls were never returned.

By now it was clear to her that if she was ever to learn the ropes she must do so on her own. Much to the future chagrin of the executive at HSBC Group, she carried out her resolution in short order. She spent countless unremunerated hours coming to grips with the machinations of the market and before long had become remarkably adept at spotting the trends; so adept, in fact, that she actually developed her own trading system. She logged onto the Internet at home and began making “trades” on a “play portfolio” she had put together. Before long she was consistently out-performing the “experts”. Clearly, any legitimate securities firm ought to have been thrilled to have landed such an ingenious and industrious rookie advisor.

But when, as in the financial services industry, the inmates are running the asylum, signs of incipient sanity are regarded with suspicion. Qualities such as resourcefulness and honesty are as cancers to such a system; they must be ruthlessly excised lest they be considered the norm. Too much integrity and the system would grind to a halt. Marcia never got a chance to implement her system for real, even though she had clients interested in signing on for it. After thirty years in the business, first as a banker, then as a financial planner, and finally, as an honest broker, her career was shot down, or perhaps more accurately, drowned in an ocean of corruption.

Corruption at the Top

She remembers it well, the day she caught HSBC Asset Management, the subsidiary of the HSBC Group which manages pooled funds accounts for generally wealthy clients, in flagrant delicto. The victim of the malfeasance was a seventy-nine year old widow, another client with whom Marcia had had dealings while she as still an MIS.

It started with a breach of securities regulations, of a sort, which had become routine, and generally attracts a routine fine as a token punishment. A certain portfolio manager at HSBC Asset Management became seized with the compulsion to gamble with the clients’ money as though it was her own. This manager has since left the firm under suspicious circumstances and, indeed, appears to have forsaken the entire industry. What she did was, speculating that the market was poised for a rise, upped the clients’ ante; she unilaterally altered the mandate which the client had signed up for.

There are clear guidelines for establishing and changing investment mandates set out here and there in the forest of securities regulations. They can all, however, be generally subsumed under the “Know Your Client” (KYC) rule. Not surprisingly, this rule dictates that any changes to a mandate are only valid if they are made with the client’s full knowledge and consent. The evidence of such consent would be a duly executed KYC form.

In the case of this elderly widow, perhaps complying with the KYC rule would have taken too long for the market to remain in its presumably advantageous position. Or the manager might have balked at the difficult task of explaining a controversial decision to an unsophisticated investor. Whatever the reason behind the manager’s ignoring the KYC rule, the fact remains that there was no new client signature on any new form. Then the market failed to perform as the portfolio manager expected. Marcia’s client-- as well as every other pooled fund client across the country invested in the same portfolio-- was made to suffer greater losses that she should have.

Nor was this the doing of a rogue portfolio manager. Rather, the decision was clearly taken at the highest levels of Asset Management’s executive. The motivation appears to be of the crassest sort, simple greed, and after the fact, with sheer cowardice.

Predictably, the poobahs at HSBC Group desired to resolve the matter internally, and took the position that the portfolio manager in question had properly exercised her discretion. It was submitted, incredibly, that the client—and by extension all other pooled fund clients invested in the same portfolio-- had authorized the manager to alter the mandates whenever she felt like it, and thus was not liable for the excessive loss.
In a letter to Marcia’s client dated August 27,2001, the Chief Executive Officer of HSBC Asset Management, Stephen Baker, makes these astonishing claims:

As mentioned above, in modifying asset ranges and implementing increased exposure to equities we were carrying (sic) our responsibility of discretionary investment management. These changes while not announced were communicated. The actual increase in equities was shown in the HSBC Pooled Fund Review for Q1/01 dated April 2001, in the section “Model Portfolios for Investors”, copies are provided to investment advisors. You signed an investment management agreement authorizing us to use our discretion within your investment mandate, which is what we have done.

(emphasis added)

In other words, according to this amazing logic, the changes were legitimately made because the clients’ consent was inferred from her being informed of them after the fact. Baker’s assertion, moreover, that the changes were “communicated” to the advisors even though they were “not announced” is either pure unvarnished gobbledy-gook, or a bald faced lie; so too was his incredible statement that in unilaterally upping the client’s ante HSBC Asset Management was acting “within the mandate”.

Ethically, Marcia now found herself at odds with yet another subsidiary of HSBC Bank Canada. Once again she resorted to the mother test and determined her fiduciary duty to her client outweighed the personal interest in maintaining a smooth relationship with HSBC Asset Management. She directed a letter to Stephen Baker dated September 7, 2001 in which she informed him of her duty pursuant to rule 302 of her CFP Code of Ethics, which provides:

Rule 302

A CFP licensee shall offer advice only in those areas in which the CFP has competence. In areas where the CFP licensee is not professionally competent, the CFP designee shall seek the counsel of qualified individuals and/or refer clients to such parties.

Marcia interpreted this rule to mean she was duty bound to refer her elderly client to a lawyer. Indeed, as any lawyer would argue, the words “shall” set out in Rule 302 evince that she had no discretion to do otherwise.
It was beyond dispute that HSBC Asset Management had committed an actionable offence. This client, however, was far more generous to her portfolio manager than she ought to have been and settled for an ex gratia payment to her account, a pittance of what she would have been awarded by a court. The fact remains that she would have had a valid cause of action even if the market had gone up.

That HSBC Group was so anxious to resolve the matter internally is also noteworthy. The executive was well aware it was in a precarious legal position, that if wrongdoing was admitted in one case, the liability would have to accrue in regard to all the other pooled fund clients invested in the same discretionary account across the country.

By the time Marcia wrote her letter the firm had hired a new branch manager, Barry Clark. He called her into his office one day and informed her that “they”, meaning the executive at HSBC Group, “didn’t like her letter.” She was told that if she referred her client to a lawyer or if she got the regulators involved she would be asked to leave the firm. Marcia replied that because she had done nothing wrong she had no intention of leaving. Moreover, Asset Management had itself suggested on a prior occasion that Marcia have a client seek independent legal advice before investing in a pooled fund account. Clark expressed the opinion that she would be given a severance package, his rationale being that she should “not shit where she sleeps”. This from the representative of the firm, which had demanded she maintain her CFP license in good standing. She was now being threatened with the loss of her job if she did not jeopardize her license by wilfully breaking rule 302 of her code of ethics. She was also well aware that the banking regulators also have requirements, such as signing a yearly statement that no malfeasance was witnessed at the branch she was working at, upon which her continued employment was conditional.

If she felt she was rudderless during her probationary period she was now even more adrift. She was floating on a sea of corruption which threatened to engulf her at any moment, and that proved to be even deeper that she expected once she got the regulators involved.

First, she filed a formal complaint report with the BCSC against HSBC Asset Management. Upon hearing the substance of the complaint, the investigator who took her statement made a telling observation. His first reaction was to exclaim that “we could shut them down” if the substance of the complaint was found to have merit, that is, if the firm had committed so egregious an act as to unilaterally alter the mandates on one class of its pooled fund accounts. After all, CIBC is now defending itself against a class action for doing precisely the same thing with certain of its mutual funds.

Marcia also filed concurrent complaints against her own firm, HSBC Securities, for other ethical breaches. One of her colleagues, for example, determined that the pickings for new clients were better if he operated out of the bank branch, even though it was not licensed for him to sell securities. Another IA had failed to comply with the KYC rule before executing a trade for a client.

It seemed to her that the Superintendent of Financial Institutions ought to be interested in how HSBC Bank was being wilfully blind to the goings on at one of its branches in allowing unlicensed securities activities. When she directed a letter to that august body, however, she found its representatives did not want to get within five hundred miles of the stench emanating from he HSBC Group in Victoria. The office of the superintendent refused to exercise jurisdiction; instead, it passed the buck to the Investment Dealers Association (IDA) in British Columbia.

The IDA agreed that it was a serious breach to operate out of an unlicensed bank branch and informed Marcia that the matter would be addressed when the firm was next audited. Her complaint regarding the failure of an IA to comply with the KYC rule, however, disappeared into a bureaucratic black hole. The IDA never even acknowledged receipt of her letter.

The Financial Mafia

In the meantime, the BCSC had concluded its investigation of Asset Managements shenanigans on its pooled fund portfolios. The conclusion, which was arrived at, if ever widely known and disseminated among the investing public, would in all likelihood call into question the BCSC’s very legitimacy. HSBC Asset Management, it was determined without giving reasons, had committed “no clear violation” of securities regulations when it changed the mandate on an entire class of its pooled fund accounts.

The fraudsters received not so much as a reprimand. The clients who lost money were figuratively spat upon by the very agency charged with upholding the public trust. Further, in whitewashing the sins of the portfolio managers, and in suggesting the clients’ losses could be chalked up to a bad day for the market, the BCSC made itself an accomplice to the malfeasance.
It is an open question the degree to which the incestuous relationship between the HSBC Group and Steve Wilson, the BCSC’s executive director, played a role in the plainly erroneous decision. It is certainly fortuitous that prior to his appointment to the regulatory agency’s directorship Steve Wilson was the former President of Hong Kong Bank of Canada Securities, former Vice President of HSBC Asset Management Canada and former Vice President of Hong Kong Bank of Canada.

Make no mistake; what the BCSC had done was a real paint job, a whitewash of the first order. This is proved by the agency’s own audits of pooled fund accounts for the past several years. Not only were infringements of the KYC rule found to have occurred in every year, they were among the five most frequent infractions committed by portfolio managers. In other words, that HSBC Asset Management had violated securities regulations in regard to Marcia’s client was abundantly clear, despite the BCSC’s bogus finding to the contrary. The firms that were audited were even warned that continued flaunting of the KYC rule might well attract civil liability in addition to administrative sanctions for non-compliance.

As if this were not enough, the Ontario Securities Commission (OSC) came to precisely the same conclusion in its annual reports for 2002 and 2003. The OSC also decried the cavalier attitude towards compliance evinced by the firms which were audited, including HSBC Asset Management. Just as with the BCSC’s recommendations, the OSC’s conclusions were treated with almost palpable derision, as though they were idle threats uttered by a feckless schoolmarm. The KYC rule continues to this day to be routinely ignored; new audits are commissioned and the findings presented to the subject firms with a nudge and a wink and an empty promise extracted from them to “do better” in the future.
It cannot be stressed enough that the raison d’etre of agencies such as the provincial securities commissions is the protection of the public interest. This is effected when it can be plainly seen that the financial services industry is operating with the utmost integrity. The reality, however, is just the opposite; the regulators in fact carry out their functions with the most calculated hypocrisy.

The most felicitous comparison -- and this is no hyperbole -- is with organized crime. Advisors like Marcia are regarded as “soldier earners” and are subjected to the most intrusive forms of nannyism by the regulatory bodies. The idea is an old one: throw the authorities a few little fish to fry so that the big ones can continue to operate with impunity. These advisors are so routinely scapegoated that they are not even allowed to purchase error and omissions insurance.

The old boys’ network (and they are always boys), on the other hand, the presidents, vice-presidents, CEO’s, and so on, have the status of “made men”. They even have their own regulators staffed entirely by similarly “made men”. They also have their own “argot”; to use a word of Jean Genet’s in describing the language of the French underworld. Marcia suspects that government is utterly ineffectual in regulating the industry because elected representatives cannot even understand the lingo. It was for this reason alone that the “made men” came to undermine the legitimacy of the regulators' authority.

The irony in all of this-- and it is a bitter one -- is that the only one floating on this cesspool, the only one actually looking out for the interests of investors, are the little “soldier” IA’s like Marcia. It is these individual advisors who bestow any integrity at all upon the system, and who most often take the fall for the ethical failings of the whole profession.

The Unsung Hero

For her part, Marcia never set out to become a hero. She simply did not have a dishonest bone in her body, and was tired of being unable to do her job without daily having to confront the corruption all around her. The mantle of guardian of the integrity of the industry was passed to her in spite of her protestations. But adversity has a way of seeking out the most courageous, and for her heroism she lost everything. Everything, that is, except her soul.

The mucky-mucks at the HSBC Group, after establishing the nearly impossible requirement that Marcia maintain her CFP license in good standing, now sought retribution for her taking her code of ethics seriously. Some of her trailer fees were simply withheld, without explanation, so too were monies which were owed to her pursuant to the short term disability plan she was obliged to resort to when her struggles with the system left her clinically depressed. Then when she sought to assert her contractual rights and demanded to be paid the monies that were owed her, her efforts were construed by the bank’s personnel manager as constituting her resignation. This position is shown to be even more absurd when it is born in mind that Marcia was not even employed by the bank any longer. It can hardly be a coincidence, moreover, that her wrongful dismissal occurred on June 6, 2002, on or about the very day on which Paul Martin’s resignation as Canada’s finance minister was tendered by Jean Chretien.

The vindictiveness and sleaze of the executive of HSBC Group hit new depths when Marcia applied for employment insurance. Her record of employment was deliberately withheld for several weeks so that her claim could not be processed in a timely fashion. Then when the document was finally delivered to the employment insurance commission it contained the libellous assertion that Marcia had resigned her position. The libel had its desired effect and her claim was denied, her premiums disappearing into to $844 billion fund the commission “administers”.

It had been an inferred condition of employment at HSBC Group that any personal debt will be obtained from the employer bank. During the course of her employment, Marcia had on two occasions given mortgages to the bank, one on her home and one on a townhouse she owned as a rental property. Immediately upon her being wrongfully dismissed Marcia put both properties up for sale and in the most shamelessly predatory manner the bank attempted to foreclose on both. They had complete records of her financial status and were well aware her loss of employment meant she would be unable to maintain her payments.

Next, the transfers out of her RRSP’s were inexplicably delayed. The cause of the delay was said to be simple bureaucratic bungling, but it cannot be denied that it was in service of a covert campaign to crush Marcia by any available means. If she did not have enough money even to live on she would be hard pressed, after all, to assert her legal rights and commence an action for wrongful dismissal. Nonetheless, Marcia overcame and her action is currently before the courts.

In the end, though they tried to kill her spirit, they succeeded only in murdering her career. The last straw came when the Financial Planners Standards Council showed itself to be as feckless and two-faced as every other agency charged with regulating the financial services industry. When news reached the council that Barry Clark had advised Marcia to commit a fraud, the branch manager was not sanctioned in any way. When Marcia declared bankruptcy, as she was obliged to do, she advised the Financial Planners Standards council and lost her license until she was discharged from bankruptcy.

Bankruptcy has proven to be an insurmountable obstacle to Marcia’s obtaining other employment as well. One firm after another has remarked upon her impressive credentials, while citing a policy, which prevents them from hiring someone who has gone bankrupt, regardless of the circumstances. The absurdity of such a policy can be readily demonstrated, for it is akin to a doctor being stripped of his medical license because he has had a heart attack.

So in sum, Marcia lost her profession, at which she was earning in excess $120,000 a year; her impeccable credit rating was destroyed, and all her savings had to be liquidated; she lost her home, her rental property, even her BMW; and she lost all her health, life and disability insurance benefits. All of these factors establish that the death of Marcia’s career was indeed a homicide; it cannot be contributed to any natural cause.

It was unavoidable that her reputation would be tarnished, even though it is widely accepted that she was an honest broker. Anytime an IA makes an abrupt disappearance suspicions are bound to arise in the minds of her former clients. No doubt the HSBC Group has invented some kind of cover story to satisfy the more inquisitive.

Marcia’s pride, however, is very much intact, and so too is her conviction that she would do it all over again. Someone has to try. The financial services industry has become a leviathan ever since the banks began their overreaching, a veritable ogre of corruption, consuming anything in its path, including its own rules and regulations, like so much grist for the mill. She has taken a few scars on her soul, but she is proud of them too, because they serve to remind her that she was able to hold onto her soul, though the whole world might have been taken from her.

She intends to get it all back. Her career might have been murdered, but she herself is very much alive. She is ready once again to take up her calling as the official thorn in the side of the financial services industry, and to vindicate herself in a court of law.

In Requiem

So it is fitting at this time that this coroner’s report becomes a eulogy we should bow our heads and observe a moment of silence. Thus do we pay our respects to the ideals, which Marcia’s career stood for, the integrity of the financial services industry and the preservation of the public trust in relation thereto? It is fitting that we say a prayer as well, in memory of what should have been a thriving career, cut short in the bloom of its youth.
We should say a more fervent prayer, a lamentation, in fact, for the financial services industry as a whole. Truly its institutions are sick unto death; truly, it is dying of cancer. Already the disease has spread and has all but consumed the integrity of the regulatory agencies mandated to hold the cancer in check.

But above all, pray for the individual investor, that God may guide him though the valley of the shadow of corruption and into the arms of another honest broker like Marcia.

Let not this death of a saleswoman be in vain.

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Re: whistleblowers

Postby admin » Sun Dec 27, 2009 12:01 pm

After many years of study, and a bit of personal experience with telling the truth to power, or questioning self serving decisions of power, I have learned this:

Those in power often do not want someone who will question, will probe, and challenge. This makes sense when I look back on it, but when going through it, it is almost inconceivable that persons in power would want to knowingly damage others, their reputation, or the reputation of their company or office. It just does not make sense to the truth teller, does not compute from the perspective of the whistleblowing employee.

What the employee cannot grasp is the personal motivations inside the man or woman (more often man) who is trying to control the situation to his advantage. All the whistleblower can see is a liability to the organization and damage done to the public at large. The abuser sees so much more. He sees money, power, promotion, glory, a chance to grasp a rising star. In light of these visions he finds it easy to risk the organization, especially since he feels there is little risk of being caught.

Especially, if he has absolute control over subordinates. Who is going to tell on him? This is why employees who are "yes" men are often more highly valued than those who will question. A "no" man might just get in the way of grasping that rising star. Might question the morality or the ethics.

This brings an unusual set of circumstances into play. Where a system allows (protects) "yes" men and actually punishes those who question abusive practices, there is often a breakdown that occurs, where the motivation is to look the other way, to "see no evil".

Imagine a society run by this process, this mentality? It is capitalism run wild. Survival of the fattest, the meanest, the dirtiest players on the planet.
It is the kind of "system" spoken of in the book "THE LUCIFER EFFECT" which breeds things like the NAZI party in the Germany of old.

We need to openly deal with this issue. It is one of the foundations of a civil society, and if it is missing, we of course have no chance in the long term.

See HUMANISM, or CAPITALISM 2.0, in the blog at http://www.breachoftrust.ca as a concept where capitalism is enhanced with the addition of "accountability and responsibility" and a system of public and private inspections, checks, balances and enforcements that are intended to ensure that an entire industry is born to protect these essential elements of a civil society.

Like the environmental industry, born of need, and becomes a win win for society and the world, the "humanity" industry might be able to create some fairness and protection from abuse by powerful elites. Or it might be just my imagination, runnin away with me.................
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Re: whistleblowers

Postby admin » Wed Dec 23, 2009 7:54 pm

here is a tiny glimmer of hope for those who try to reveal the truth about activities that others might wish to keep silent

Canada court increases libel protections
By CHARMAINE NORONHA (AP) – 4 hours ago
TORONTO — The Supreme Court of Canada strengthened protections for journalists and bloggers in a pair of rulings, hailed as a victory for press freedom in a country with especially stringent libel laws.
Tuesday's rulings involving the Toronto Star and Ottawa Citizen newspapers, created a new responsible journalism defense giving reporters more leeway to pursue controversial stories as long as they are deemed to be in the public interest.
In both cases, the justices ruled 9-0 in the newspapers' favor.
Lawyers called it a major step toward reducing so-called "libel chill," where journalists back away from contentious stories for fear of being sued.
The rulings mean journalists cannot be held libel for factual errors in stories deemed to be in the public interest so long as they take a series of steps, outlined by the court, to ensure fairness.
Writing for the court, Chief Justice Beverly McLachlin said Canada's existing libel defenses were too restrictive and contrary to the free expression guarantees in Canada's constitution.
"Freewheeling debate on matters of public interest is to be encouraged and the vital role of the communications media in providing a vehicle for such debate is explicitly recognized," McLachlin wrote in one of the two rulings. "While the law must protect reputation — the current level of protection — in effect a regime of strict liability — is not justifiable."
One of the rulings upheld an Ontario Court of Appeal decision striking down Ontario businessman Peter Grant's $1.5-million Canadian (US$1.4 million) libel award against the Toronto Star and ordered a new trial.
A lawyer for the Star, Paul Schabas, told The Associated Press that the rulings are a major step toward bringing Canada's archaic defamation law into line with other nations like the United Kingdom and Australia.
"It's a historic decision. The most important libel decision ever decided by the Supreme Court of Canada," said Schabas.
Robert Cribb, an investigative reporter for The Toronto Star and journalism professor at Ryerson University praised the decision saying it would enable Canadian journalists to do far-reaching, controversial stories similar to their American counterparts.
"It's a fabulous victory, much anticipated and awaited," said Cribb. "I'm on the board of an American organization of investigative reporters and editors, and ... they are able to do stories that are more difficult for us to do here because the restrictions have been so tight so until now."
The other case, had to do with an Ontario Provincial Police officer who was awarded $125,000 Canadian (US$119,000) after the Ottawa Citizen produced a series of articles casting his unauthorized trip to New York City after the Sept. 11 terrorist attacks in a negative light.
The Supreme Court ordered a new trial striking down Danno Cusson's financial award. "It brings us into the 21st century," said Richard Dearden, a lawyer representing the Ottawa Citizen. "It's a huge victory for the freedom of press in terms of the types of stories you can publish up here and not be sued for libel."
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