Second Thoughts About the S.E.C.’s Whistle-Blower Program

The Securities and Exchange Commission’s rapid development of its whistle-blower program may well catch criminal activity that falls under the radar. The program sounds great, in theory, but there are several ways its success may harm the agency. In a sense, the program privatizes enforcement just as the agency is struggling to get more public financing. It also may not add a necessary new incentive to some decent old ones, and it creates a perverse financial motivation for employees at corporations. A closer look at these problems: More in the New York [...]

SEC official plays down concern about whistleblower program

The U.S. Securities and Exchange Commission’s fledgling whistleblower program has helped focus the work of agency investigators and should not be measured by the dearth of awards so far, a senior SEC official said. Speaking at a panel discussion in New York, Associate Director of Enforcement Stephen Cohen said officials operating the 20-month-old program are devoting more attention to alleged wrongdoing involving asset management, financial reporting and “sophisticated trading” techniques. He noted that it takes time to sort through the tips, which totaled 3,001 in the first year, and that the mere one award given so far under the program should not signal lax or inadequate oversight.
More on Reuters here. [...]

MF Global Suit Still Leaves Gaping Investor Protection Hole

MF Global trustee Louis Freeh is suing John Corzine and other officers of the now-bankrupt company. What’s missing from this picture? A concerted effort to protect investors from future MF Globals, Peregrines and Madoffs. While customers of the company may get their money back, where are the new safeguards? Somebody wasn’t supervising Corzine, his traders and customer money. That much is clear. Where was the Commodity Futures Trading Commission and National Futures Association, the two main regulators? Why aren’t these groups facing tough Congressional investigations? If Corzine is responsible for the alleged malfeasance of MF Global, does the Department of Justice consider the former senator, New Jersey governor and Goldman Sachs chief too big to jail? Who’s looking out for the little guy?
More in Forbes [...]

Wall Street Fees Draining Retirement Savings Of American Families: Frontline

Wall Street has made it far more likely that you will spend at least some of your golden years eating Fancy Feast. A new Frontline documentary, “The Retirement Gamble,” which first aired Tuesday night and is now available online, highlights how Wall Street is stripping our already dwindling retirement funds clean with fees and bad performance. It’s something that we just let happen because we usually don’t know any better, and the legwork of figuring out our fees and investments is hard, because the industry has made it that way. We often don’t realize that we would be far better off simply putting our money into low-cost index funds and forgetting about it. The documentary spends a lot of time on a 2012 research paper by Robert Hiltonsmith of the think tank Demos, which found that a median-income, two-earner family will pay a staggering $155,000, all told, in 401(k) fees. That cash represents about 30 percent of the total retirement savings this hypothetical family would have had, if it had paid no fees. More in the Huffington Post [...]

Strategic Posturing Behind the Suit Against Corzine

Louis J. Freeh, the bankruptcy trustee for the failed futures firm MF Global, filed a lawsuit aimed at pinning its collapse squarely on Jon S. Corzine, the former chief executive, and two of his top lieutenants. And unlike in many other suits, Mr. Freeh has not named other groups like a company’s directors.
The tale Mr. Freeh weaves in the complaint presents Mr. Corzine and the other defendants, Bradley I. Abelow, the former chief operating officer, and Henri J. Steenkamp, the former chief financial officer, as having failed to properly manage risk at MF Global while recklessly trading in European sovereign debt. It is a picture of a headlong rush into failure. Mr. Freeh asserts that the three defendants breached their fiduciary duties by allowing MF Global to take on excessive risks. More in the New York Times [...]

Tribeca Film Festival: A Unique Perspective on the Madoff Meltdown

In early 2009, a journalist introduced the filmmakers Derek Anderson and Victor Kubicek to Eleanor Squillari. The Bernard L. Madoff financial scandal was dominating the news — Mr. Madoff had been arrested in December 2008 — and as the disgraced financier’s former secretary, Ms. Squillari was a hot property among reporters and others hoping to untangle the crime. “She was a fly on the wall in one of the most interesting rooms in financial history,” Mr. Kubicek said. Fortunately for the filmmakers, the meeting went well enough to convince Ms. Squillari to join them on a documentary about the fraud. The film, “In God We Trust,” had its premiere at the Tribeca Film Festival last Friday and will screen again on Thursday. More in the New York Times [...]

Beware of Financial Fraud

Financial fraud is rampant today. Besides high profile cases like Bernard Madoff or Allen Stanford investors are being defrauded out of their hard-earned money at an alarming rate. Sadly even two former presidents of The National Association of Personal Financial Advisors, the country’s largest organization of fee-only financial advisers, have been implicated in fraud cases over the past few years. (Full disclosure, I have been a registered NAPFA adviser since 2003.) CNBC even has a regular show called American Greed that “showcases” financial fraudsters in each hour-long episode. There seems to be no shortage of subjects to profile for new episodes. More in US News and World Report [...]

Hazy Future for Thriving S.E.C. Whistle-Blower Effort

For years, Wall Street’s top enforcers lacked the firepower to thwart financial misdeeds like Bernard L. Madoff’s Ponzi scheme. But now that the Securities and Exchange Commission has turned to sophisticated statistical tools and financial experts, one of the most effective weapons in its new enforcement arsenal may be a more traditional one: whistle-blowers. Already, a whistle-blower program has bolstered an investigation into a trading blowup that nearly toppled Knight Capital, the largest stock trading firm on Wall Street, according to lawyers briefed on the case. More in the New York Times [...]

MF Global’s Trustee Sues Firm’s 3 Top Executives

A bankruptcy trustee has sued Jon S. Corzine and other former MF Global executives, claiming they were “grossly negligent” in the lead-up to the brokerage firm’s collapse. The action by the trustee, Louis J. Freeh, comes just weeks after he agreed to postpone the lawsuit and enter mediation with Mr. Corzine. Now, by filing litigation that appeared to catch the MF Global executives off guard, Mr. Freeh may have jeopardized those talks. A spokesman for Mr. Corzine, Steven Goldberg, disputed the charges and questioned why Mr. Freeh was even filing the case. “We question why the trustee chose to file this lawsuit, which is filled with seriously flawed allegations, while he is participating in court-ordered mediation of these very claims.”
More in the New York Times [...]

Ex-Madoff attorney named chair of N.Y. ethics panel

Daniel Horwitz, a partner at the boutique law firm Lankler Carragher & Horwitz in Manhattan and one of Bernard Madoff’s defense lawyers, was appointed chairman of the state’s political ethics watchdog on Monday by Governor Andrew Cuomo. Horwitz will take over as chair of the Joint Commission on Public Ethics from Westchester County District Attorney Janet DiFiore, who stepped down in order to run for re-election this year. The commission, known as JCOPE, was created in 2011 as part of a sweeping ethics-reform package signed into law by Cuomo. It regulates government ethics and lobbying for state legislators, legislative and executive branch employees, and political candidates, as well as lobbyists and certain party officials. More on Reuters [...]