Friday, March 13, 2009

Whistleblowing, Why?

"Many whistleblowers--employees who alert their bosses to fraud or recklessness in how a business is being run--do not fare as well as the Fool. They are not only ignored, but are sacked for being persistent irritants and naysayers. Yet, many of those who disdain or sack whistleblowers regret it later. ... Sir James Crosby resigned this week as deputy chairman of the UK Financial Services Authority after a controversy over a whistleblower at HBOS, the banking group of which he was formerly chief executive. Paul Moore, the former head of regulatory risk at HBOS, accused Sir James of firing him for warning about the bank's rapid growth. ... Meanwhile, another whistleblower is discomfiting US regulators. Harry Markopolos, a former fund manager, gave the [SEC] a dossier of evidence that Bernard Madoff was running a Ponzi scheme. He was ignored until Mr. Madoff had drawn in $50 billion. ... There are two reasons why [whistleblowers are ignored]. One is that they can be annoying. ... Someone who is a fraudster or is knowingly taking reckless risks has, of course, a motive for suppressing a whistleblower. But in many cases, the managers to whom a whistleblower complains are not themselves at fault but but simply dismiss the complaint as wrong or overblown. ... But some things are more complicated. 'Some people become whistleblowers because they feel that they were denied a bonus or a promotion or were not treated property,' says Steven Skalak [SS], a partner of PWC who investigates corporate fraud. The second obstacle is that not all complaints are well founded. The details given by Mr. Markopolos may have been underestimated by SEC officials because he was a rival to Mr. Madoff and seemed to have an axe to grind", my emphasis, John Gapper (JG) at the FT, 14 February 2009.

"A whistleblower contacted US regulators more than five years ago with allegations that Sir Allen Stanford's businesses were involved in an 'illegal Ponzi scheme', the Financial Times has learnt, raising new questions about why authorities waited until last week to shut down the alleged $8bn fraud. ... Leyla Basagoitia, a former Stanford employee, raised a series of red flags about the tycoon's empire in a 2003 employment dispute with her company at a tribunal run by the US finance industry's self-regulatory body. Ms. Basagoitia also alerted the US [SEC] at about the same time, her lawyer said, echoing criticisms that the agency ignored early warnings about Mr. Madoff's alleged fraud. ... Basagoitia's allegations were denied by Stanford Group Company and dismissed by the dispute resolution panel. She was ordered to pay Stanford $107,782 in damages, in repayment of a loan advanced to her while an employee of the company", Robert Cookson, Michael Peel and Joanna Chung at the FT, 27 February 2009.

JG's is one of the stupidest articles I've seen in months. What difference does it make why one becomes a whistleblower? What matters is: was he right. PWC investigates corporate fraud, since when? PWC investigates low level employee fraud committed against corporations. Will SS go to India to find out what happened at Satyam and see how many hundreds of millions PWC should pay to settle lawsuits against it? SS discredits whistleblowers. That's what SS's corporate masters pay him to do. How many times in the last five years did SS testify in court that another Big 87654 firm screwed up an audit? My guess: none. Why listen to PWC? It's one more parasite. Didn't PWC audit AIG, recipient of $170 billion in federal bailouts? People who live in glass houses shouldn't throw stones. Who cares if Markopolos had an "axe to grind"? Was he right? See my 18 January 2009 post about Meaghan Moron, link: and 3 March 2009 post:

Was the body FINRA, Mary Schapiro's old outfit? Will the "dispute resolution panel" be investigated? If so, by whom? Will anyone get indicted at: FINRA, the SEC or the law firm which represented Stanford? Don't hold your breath. Self-regulatory body? Whaat? Like the AICPA used to regulate CPAs auditing SEC registrants?


Anonymous said...

IA... the web of civil safeguards is decrepit..

And the cost of blowups keeps getting bigger... Enron > Worldcom > 0809 Bailout...

The stables are full of muck... it may take a force of God or external threat to clean them out...

Anonymous said...

FYI - PwC does offer fraud investigation services to whoever might need forensic accounting outside the realm of an Internal Audit type function.

I think most of those customers are actually law firms, mediators, people seeking to do due diligence and not corporations but that is just from speaking with acquaintances that work there.

That partner could be in that practice.

Independent Accountant said...

Like the rest of the Big 87654, PWC purports to offer lots of services. Yes, law firms hire PWC, just like Deloitte got about $400 million from Siemens. What do you think is really going on? The issue is: What kind of frauds does PWC "investigate"?