Had the timing worked out, JPMorgan Chase & Co. (NYSE:JPM) whistleblower Alayne Fleischmann might have received a monetary award and employment protections if she reported the bank to the U.S. Securities and Exchange Commission’s under its Whistleblower program, says a leading attorney.
SEC Whistleblower Program – Alayne Fleischmann identified as fraud in the packaging of mortgage derivatives products
Alayne Fleischmann came to prominence recently as the whistleblower profiled in a Matt Taibbi Rolling Stone piece. The article details how the young lawyer informed her superiors at JPMorgan of what she identified as fraud in the packaging of mortgage derivatives products that were eventually involved in the 2008 financial crisis. After reporting the infractions to superiors in writing, she was summarily laid-off in 2008 and couldn’t find work in the industry. This might be considered odd for a bright lawyer with Cornell Law School degree and experience at a white shoe law firm, but to financial insiders she appeared to be the victim of an all too common blackball whisper campaign.
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“Had Alayne Fleischmann participated in the SEC’s Whistleblower program, she could have received a percentage of the $13 billion fine (JPMorgan ultimately agreed to pay) and her job would have been protected,” said Jordan Thomas, chair of the whistleblower representation practice at Labaton Sucharow. Unfortunately for Alayne Fleischmann, the program was not in operation until 2012 and even then was not widely known. Fleischmann reported the issue to the Department of Justice, which did not have a formal Whistleblower program along with accretive protections. (The article also details how the DoJ did not utilize the evidence to prosecute executives involved in the wrongdoing.)
Alayne Fleischmann’s plight is distressingly familiar. A recent SEC report notes that after identifying potential illegal activity to internal compliance people, over 80 percent of the SEC’s whistleblowers then were required to raise the issue to the SEC. “This says that companies are not paying proper attention to their whistleblowers,” Jordan says. “They need to take if more seriously.”
SEC Whistleblower Program – SEC sending message
Jordan says the message the SEC is sending is that not only should whistleblowers come forward to the agency, but firms that retaliate against whistleblowers will themselves become targets of the SEC. This happened for the first time on June 16, 2014 when the SEC charged Paradigm Capital Management and owner Candace King Weir with retaliation against a whistleblower, leveling a $2.2 million fine.
The issue with the SEC program has been awareness, says Jordan. A proprietary study for Labaton Sucharow revealed that in 2012 only 29 percent of those in financial services were aware of the SEC Whistleblower program and its protections. In 2013 that number rose dramatically to 60 percent. In 2014, after record awards – including $30 million going to one whistleblower – Jordan expects awareness to grow even further.
While financial reformers have a positive outlook on the developments, they want to see more.
“The recent details provided by the SEC regarding its whistleblower program are the ultimate ‘good news, bad news’ story. After many decades of little to no meaningful whistleblower activity, the recent news are a welcome change but still appear to be little more than a drop in the bucket,” said Larry Doyle, author of In Bed With Wall Street and a former JPMorgan executive that blew the whistle on regulatory capture in his book. “The fact that approximately one tenth of one per cent of the total whistleblower reports lead to ultimate whistleblower awards leads me to think that there is likely a whole lot of missed opportunities and ongoing regulatory capture if not outright corruption still at play.”
Jordan wants to see action as well but says the new program needs time to get off the ground, as it typically takes near 2 to 4 years for a whistleblower complaint to materialize into an award and awards are only given in cases over $1 million where the whistleblower provided unique and needed assistance to investigators.