Dear Blog Readers

Look, someone has to pore over the reports coming from the Government Accountability Office, various Inspectors General, and sundry ad hoc committees.

Someone has to file Freedom of Information Act (FOIA) requests, hold the legislative and executive branches' feet to the fire, audit Open Government Plans, and examine court documents.

Someone has to dive into the weeds in the name of creating a more effective, open, ethical, and accountable federal government.

Maybe you can sense where we're going with this. POGO's had one heck of a year, but we need your help in order to carry these efforts forward in 2011. We don't take contributions from the government, corporations, unions, or anyone with a financial stake in the outcome of our investigations. That leaves you, dear readers. If you can find it in your hearts to make a contribution—whether it's $5 or $5,000—we would be most grateful.

Help us fight for a more effective, accountable, ethical, and open federal government and make a donation today.

Thank you for reading. 

-- Bryan Rahija

SEC Describes Possible Criminal Activity in Unprosecuted Hedge Fund Case

Amid Crackdown on Wall Street, Government Enforcement Efforts Still Questioned

By Adam Zagorin and Michael Smallberg

Attorney General Eric Holder. Credit: DOJ.

The Obama administration has stated it will aggressively go after Wall Street criminals, but is the government letting two defendants off easy?

As part of a big crackdown on Wall Street fraud, Attorney General Eric Holder recently revealed an “investigation is ongoing” that is “very serious,” believed to involve hedge funds and insider trading. He also has announced “Operation Broken Trust,” a Department of Justice-led task force targeting hundreds of illicit investment schemes. One of Holder’s wingmen is Preet Bharara, U.S. Attorney for the Southern District of New York. Bharara has threatened to file criminal charges including perjury against those who mislead federal investigators looking into stock fraud.

But what neither Holder nor Bharara have highlighted is a major case involving Pequot Capital Management, once the world’s largest hedge fund, and alleged insider trading in shares of Microsoft. The target of a DOJ-Securities and Exchange Commission investigation stretching back to 2005, the Pequot case is only now wrapping up. Last month, the SEC held an administrative proceeding in New York where government lawyers detailed new and serious accusations of what appears to be criminal wrongdoing, yet experts say there is little indication that DOJ intends to follow up with a criminal prosecution.

Key Documents Transcript of SEC Administrative Proceeding in November (note: the transcript is a large file) David Zilkha's Unfiled Employment Claim Arthur Samberg's Letter to the Senate  March sworn statement by DOJ attorney

Time may be running out. The criminal statute of limitations on insider trading, the underlying alleged crime, has already expired. The clock is ticking on any DOJ prosecution of the SEC’s latest accusations in the case.

The Project On Government Oversight (POGO) obtained a transcript of the previously unreported November administrative proceeding (note: a large file) involving Pequot. In it, Mike Foster, one of three SEC lawyers who presented the case, said that a defendant had engaged in “deception” by having “concealed” evidence from FBI agents and SEC investigators. Foster also said in court that the defendant solicited $2.1 million in “hush money” from another defendant, Pequot’s chairman, who settled civil charges with the SEC earlier this year. Most of the $2.1 million was paid.

SEC accusation of $2.1 million of "hush money" in Pequot case. Source: SEC administrative proceeding transcript.

The SEC closely coordinated with DOJ and Bharara’s office in the Pequot investigation. As recently as March, an assistant U.S. Attorney working for Bharara’s Southern District offered a sworn statement in a related federal court proceeding in which he said he was conducting an investigation “into potential violations of the criminal laws” in the Pequot matter. Two months later, the SEC settled insider trading charges with one of the defendants. So far, no criminal charges have been filed against anyone.

Contacted by POGO, neither agency would comment on when or if the case would ever be prosecuted.

However, a powerful Senator did not hesitate to comment on the matter. “The Department of Justice owes the public an explanation for why there have been no criminal prosecutions despite the SEC openly making accusations of a witness being bought off,” Senator Charles Grassley of Iowa told POGO. Grassley is slated to be the top Republican on the Senate Judiciary Committee, which oversees the DOJ. “The public has a huge interest in the case, congressional hearings were held, and the SEC has now characterized the payments as 'hush money.' So where is the Justice Department?”

Morning Smoke: Watered Down Whistleblower Bill Too Much for One Anonymous Senator

Where there's smoke, there's fire. POGO's Morning Smoke is a collection of the previous day's investigations, scoops, and opinions related to the world of government oversight. Have a story you'd like to see included? Contact POGO's blog editor.

Bill to empower whistleblowers fails to pass Senate by R. Jeffrey Smith [The Washington Post]

A Transocean Employee on the Deepwater Investigation? by Kate Sheppard [Mother Jones]

Dollars for Docs Payments Approach $300 Million by Charles Ornstein, Tracy Weber and Dan Nguyen [ProPublica]

Congressmen Ask About Probe of GAO Probe by David Ingram [The Blog of Legal Times]

Whistleblower Group Issues Report Saying Cash Incentive Doesn’t Drive Informants To Authorities by Samuel Rubenfeld [The Wall Street Journal]

Pentagon Inks Sweetheart Deal For Mi-17s [Defense Tech]

Insourcing provisions land on the cutting room floor by Robert Brodsky [Government Executive]

Transocean Worker Joined US Probe Of Equipment, Photos Show by Siobhan Hughes [The Wall Street Journal]

From danger to dollars: What the US should do with its highly enriched uranium by Ingrid Drake and Peter Stockton [Bulletin of Atomic Scientists]

 

Scientific Integrity Memo Could Protect Scientists from Pressure by Special Interests

In case you missed it, the White House Office of Science & Technology (OSTP) on Friday released a memorandum on scientific integrity. 

As noted by the Union of Concerned Scientists (UCS), "If fully implemented by federal agencies and departments, the directive could help protect government scientists from pressure by special interests, and would ensure that the government can make fully informed decisions about public health and the environment."

OMB Watch called the directive a "step forward," but cautioned that "the devil will be in the details, some of which are lacking in this memo."

Seemingly taking a page from the Open Government Directive, the White House memo requiring executive branch agencies to take several steps to increase transparency such as creating Open Government Plans, the scientific integrity memo instructs federal agencies to develop detailed scientific integrity plans.

UCS rightly points out that this requirement, along with others in the memo, "leaves an enormous amount of discretion to the federal agencies and departments who are now charged with furnishing the details." 

UCS has submitted a list of minimum requirements recommended for each agency's action plan. 

Read the new White House directive here. 

-- Bryan Rahija

Morning Smoke: Conflict of Interest Threatens Integrity of Oil Spill Probe

Gulf oil spill probe may have been compromised by Jennifer A. Dlouhy [Hearst Washington Bureau]

Mercs Win Billion Dollar Afghan Cop Deal. Again. by Spencer Ackerman [Danger Room]

A Leaner and Meaner Defense by Gordon Adams and Matthew Leatherman [The Will and the Wallet]

Defense contracting cuts might be much smaller than predicted by Katherine McIntire Peters [Government Executive]

Contractors Do Bad Things, Uncle Sam Has to Sit on His Hands by Gary Therkildsen [OMB Watch]

Morning Smoke: More Cases of State Department Contractors Gone Wild

Contractors behaving badly mean headaches for US by Richard Lardner [Associated Press]

Coast Guard Introduces Expanded Whistleblower Protections by Joe Palazzolo [The Wall Street Journal]

SBA suspensions in fraud investigation continue by Sean Reilly [Federal Times]

House Oks Split LCS Buy by John Reed [DoD Buzz]

Can I Quote You on Your Hidden Agenda, Defense Wonk? by Spencer Ackerman [Danger Room]

State Department review promises transparency, civilian 'face' by Charles S. Clark [Government Executive]

Fixing FOIA: Over-classification and Arbitrary Redaction by Matthew L. Schafer [GroundReport]

Former OCC Chief Dugan Rejoins Covington & Burling by Damian Paletta [The Wall Street Journal]

SEC expands mortgage probe - sources by Matthew Goldstein and Rachelle Younglai [Reuters]

POGO Urges SEC to Resist Industry's Efforts to Weaken Whistleblower Program

In a public comment submitted on Friday, POGO called on the Securities and Exchange Commission (SEC) to provide safe and open channels for whistleblowers tips.

One of the most significant provisions in the Dodd-Frank financial reform law required the SEC to overhaul its whistleblower award program, providing greater financial incentives for whistleblowers to come forward with tips, and protecting those whistleblowers from retaliation. As the SEC struggles to do its job with limited staff and resources, it needs all the help it can get from whistleblowers such as Harry Markopolos, who tried to provide the agency with a detailed analysis pointing to Bernie Madoff's Ponzi scheme. Indeed, several recent studies have confirmed that whistleblowers play a bigger role than external auditors, government regulators, self-regulatory organizations, or the media in detecting corporate fraud.

Over the past few months, however, industry groups have launched a major campaign to gut the SEC's program, insisting that whistleblower awards will undermine internal corporate compliance programs. Some companies even want to make it a requirement for whistleblowers to report problems internally before going to the SEC.

Systemic Failures That Set the Stage for WIkiLeaks, and Other Notes for a Panel Discussion

POGO Executive Director Danielle Brian recently participated in a panel discussion on secrecy, journalism and WikiLeaks. The discussion was part of a one-day conference presented by Harvard’s Nieman Foundation for Journalism. Since WikiLeaks touches on so many aspects of POGO’s work, we thought we would post the notes she prepared for the discussion. You can watch video of the discussion here. Without further ado, the notes for Nieman:

POGO was created by Pentagon whistleblowers nearly 30 years ago who wanted a voice so they could try fixing serious problems and still be protected.

POGO evolved over time to rely on those inside sources as a requirement for taking on a case (we only take one percent of what comes through our doors) but we also apply standard investigative journalism standards to our work. We begin our work on a case as investigators, but we then advocate for the reforms we believe will fix the policy failures we uncover. As a result, we are both a whistleblower and transparency advocacy organization.

Systemic Failures That Set the Stage for WikiLeaks Disclosures

1. Lack of safe, credible avenues to disclose classified wrongdoing  

The legislative protections we are working to get passed will only protect lawful disclosures of information. The lack of safe, credible avenues for disclosures is leading people who know of wrongdoing to go to the press and groups like WikiLeaks.

I have to repeat this point: the Whistleblower Protection Enhancement Act, if passed, would not have protected Bradley Manning.

Manning needed mentoring—mentoring that would have helped him to focus his leaks and protect him from prosecution while also protecting legitimate national security secrets from being compromised.

WikiLeaks Misconceptions Derail Progress, Threaten Reform

POGO's still hoping for a House vote sometime today or tomorrow on the Whistleblower Protection Enhancement Act (S. 372), which the Senate passed by unanimous consent earlier this month.

S. 372 protects federal workers who use legal and safe channels to expose waste, fraud, abuse, and threats to public safety. Unfortunately, this commonsense good government reform has found itself in legislative limbo, with Representative Darrell Issa (R-CA), incoming Chair of the House Oversight and Government Reform Committee, unexpectedly reversing his support for the bill.

Over the last few days, Rep. Issa has repeatedly raised concerns that S. 372 will enable or embolden would-be WikiLeakers—but as outlined in our S. 372 and WikiLeaks Fact Sheet, these concerns are misplaced. There is nothing in this bill that would allow for public disclosure of classified information à la WikiLeaks.

As noted yesterday in a dynamite editorial by the St. Petersburg Times, "This bill would reduce the likelihood that insiders leak sensitive information since there would be a safe, alternative means of bringing issues to light. The WikiLeak concern is nothing but a red herring."

The Wisconsin State Journal echoed these arguments in an editorial this morning:

The WikiLeaks controversy has apparently put a scare into some House members who previously would have supported the whistle-blower legislation. And that's very unfortunate, in that the two issues are not at all connected.

In fact, the absence of a reasonable, supportive path for potential whistle-blowers — such as would be created by the pending legislation — can create an environment that pushes people to WikiLeaks and the like, rather than conventional, more useful channels. (Emphasis added)

We are disappointed that Mr. Issa has flip-flopped on the bill he used to support and instead is perpetuating the myth that this bill would protect WikiLeaks.

One of Rep. Issa's Republican colleagues, however, continues to be a true hero for whistleblowers and champion for ridding the government of waste, fraud, and abuse: Rep. Todd Platts (R-PA). He and Rep. Chris Van Hollen (D-MD) are cosponsors of the House version of the bill and are working together for House passage of the version that the Senate passed unanimously.

Here's what you can do to help the efforts to secure this vital reform:

• Contact your Member of Congress and urge them to support swift passage of S. 372. Find your Representative's phone number here, or reach them via the capitol switchboard: 202-225-3121.
  
  
• Contact House Speaker Nancy Pelosi (D-CA) and future Speaker of the House John Boehner (R-OH) and tell them it's important to stand up to the myth-makers and show the American people you care about taking on waste, fraud, and abuse in government. Rep. Pelosi's office number: (202) 225-0100. Rep. Boehner's office number: (202) 225-6205.

If you are a constituent of Reps. Issa, Van Hollen, or Platts, please reach out to them with a special message:

• Constituents of Rep. Issa: Tell Mr. Issa to stop spreading the myth that this bill might protect WikiLeaks. Tell him that if he wants to end waste, fraud, and abuse in government, he should start by supporting S. 372. Rep. Issa's office number: (202)-225-3906.

• Constituents of Reps. Van Hollen and Platts should say, "Thank you for all you are doing to support the Whistleblower Protection Enhancement Act. We appreciate your leadership in protecting federal whistleblowers, and are counting on you to do all you can to have the House vote on S. 372 before the end of this Congress." Rep. Van Hollen's office number: (202) 225-5341. Rep Platts' office number: (202) 225-5836.

Constituents can also email their Representative and urge him or her to support swift passage of S. 372 here.

S. 372 has the support of a broad coalition of groups. National Taxpayers Union is urging all Members of Congress to vote YES on the bill, and notes that "roll call votes on S. 372 will be significantly weighted" in its annual Rating of Congress.

A vote for WPEA is a vote AGAINST waste, fraud, and abuse. A vote for the Whistleblower Protection Enhancement Act is a vote AGAINST leaks. If we miss this window in the lame duck session, we're back to the unacceptable status quo.

-- Bryan Rahija

Image by Flickr user 'No Matter' Project, used under Creative Commons License.

Morning Smoke: How Congress Can Deter Government Waste and Fraud

 Where there's smoke, there's fire. POGO's Morning Smoke is a collection of the previous day's investigations, scoops, and opinions related to the world of government oversight. Have a story you'd like to see included? Contact POGO's blog editor.

Editorial: Congress should act to help deter waste and fraud in government [Wisconsin State Journal]

Contact your Representative and tell them to vote YES on S. 372.

Monitoring America by Dana Priest and Willam M. Arkin [The Washington Post]

Size Protects Government Contractors That Stray by Ron Nixon [The New York Times]

Cost Cutters Fix Sights on F-35 Fighter by Nathan Hodge [The Wall Street Journal]

Justices Offer Receptive Ear to Business Interests by Adam Liptak [The New York Times]

Corporations Aim to Narrow SEC’s Proposed Whistleblower Protections by Amy Biegelsen [Center for Public Integrity]

Official: AFSOC unaware crashed CV-22 carried flight incident recorder by Stephen Trimble [The DEW Line]

Drug Companies Retain Tight Control of Physicians’ Presentations by Charles Ornstein and Tracy Weber [ProPublica]

Top Spine Surgeons Reap Royalties, Medicare Bounty by John Carreyrou and Tom McGinty [The Wall Street Journal]

BP Oil on Gulf Floor Draws Concern by Jeffrey Ball [The Wall Street Journal]

Swap Execution Facility: The New Term on Wall Street by Ben Protess [DealBook]

Senate panel ban seen as double standard by Scott Higham, Kimberly Kindy and Dan Keating [The Washington Post]

New Insourcing Rules Go Down with Withdrawn Appropriations Bill

Yesterday, Senate Majority Leader Harry Reid (D-NV) was forced to pull the $1.1 trillion fiscal 2011 Appropriations Omnibus bill off the Senate calendar. The bill’s demise not only takes more than $8 billion in earmarks, over $1 billion in healthcare reform funding, and $158 billion for the war in Afghanistan off the table, it also imperils new rules that would have required federal agencies to step up efforts to make sure certain kinds of jobs are not being contracted out to the private sector.

The provision (Section 741 of the bill) would have required agencies to report what they have done to convert jobs that were outsourced to contractors and bring them in-house for performance by federal employees. Such efforts would not only pertain to so-called inherently governmental functions, which are jobs that only federal employees can do, but also work considered “closely associated” with inherently governmental functions and even work deemed “critical” to an agency’s mission.

Contractor trade groups quickly pounced on the provision, calling it an open invitation for wanton, indiscriminate insourcing which would kill jobs, cripple the government, and probably lead to dogs and cats living together and mass hysteria.

Contractors will probably be spared this disaster of biblical proportions. Aside from the scuttled appropriations bill, there is speculation that the new Congress will severely curtail the Obama administration’s insourcing initiative. The opening salvo in the battle could take place in just a few weeks when the Office of Federal Procurement Policy (OFPP) releases new guidelines on work that should be performed by federal employees.

-- Neil Gordon

See also:

• Federal Service Contract Inventories: A Failure to Address Which Contracts Are Cost Justified
• Small Legislative Victory Heralds Brighter Days Ahead for Contractors
• Col. T.X. Hammes Says Private Security Contractors Perform "Inherently Governmental" Functions
• It's About Time: The House Passes Legislation to Disclose Additional Information about Federal Service Contracts

Timeline of Former Interior Secretary's Transition to Shell Raises Questions

Earlier this week the Department of the Interior (DOI) Inspector General (IG) released their report investigating whether former Interior Secretary Gale Norton's involvement in the oil shale program while at Interior and continued involvement as general counsel for Shell presented a conflict of interest.

The IG did not "conclusively" find a violation of conflict-of-interest laws, but did find "irregularities" in Shell's winning bids. Irregularities included the Bureau of Land Management (BLM) changing Shell's bids to comply with requirements, Shell submitting and being awarded leases on three bids when other companies were only allowed to submit one, and someone from BLM providing Shell information in advance of the Federal Register notice soliciting applications, so that Shell could submit a complete bid document the day it was announced.

While there was not a violation of federal conflict-of-interest laws, a timeline of Norton's decision to leave Interior does raise serious questions about whether she used her public service in order to advance her private interest: