SEC Narrowly Approves Final Rules for Whistleblower Program in Face of Industry Pressure

By MICHAEL SMALLBERG

At a highly anticipated open meeting held last week, the Securities and Exchange Commission (SEC) voted 3-2 to approve final rules for expanding and strengthening a program to reward whistleblowers who provide the agency with tips that lead to successful enforcement actions. Overall, despite facing significant pressure from industry groups to water down the program, the SEC was able to approve final rules that offer meaningful incentives and protections to whistleblowers, and will hopefully go a long way toward ensuring that the SEC has the information it needs to avert another financial crisis.

The SEC’s program is based on a simple but powerful premise: the Commission will be better positioned to protect investors and ensure the integrity of our financial markets if whistleblowers with direct knowledge of securities law violations are given the appropriate incentives and protections to disclose this information.

In last year’s Dodd-Frank financial reform legislation, Congress made vast improvements to the SEC’s whistleblower reward program, offering awards for tips related to any securities law violation that leads to a penalty or disgorgement of $1 million or more, guaranteeing that qualified whistleblowers will receive at least 10 percent of the amount recovered, and protecting whistleblowers from retaliation, among other key reforms.

Soon after the bill was signed into law, corporate lobbyists launched a massive effort to shape the SEC’s rulemaking on this issue. For example the Chamber of Commerce and other industry groups proposed that whistleblowers should generally be required to disclose wrongdoing internally to their employer before coming to the SEC.

Meanwhile, POGO and other groups have been urging the SEC to establish safe and open channels for whistleblowers to make direct disclosures, rather than requiring them to go through internal compliance programs—a dangerous proposal that would give lawbreaking companies the opportunity to retaliate against the whistleblower and keep their problems hidden from the SEC. We filed a public comment in December on the SEC’s proposed rules and have attended several meetings since then with SEC Commissioners and their staff to discuss our concerns. We also called on Congress to reject legislation introduced by Rep. Michael Grimm (R-NY) that would completely gut the SEC’s program just as key improvements are being put in place.

Morning Smoke: An Earmark By Any Other Name...

Where there's smoke, there's fire. POGO's Morning Smoke is a collection of the freshest 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.

Earmarks

On House armed services panel, earmarks are in the eye of the beholder
Walter Pincus, The Washington Post

National Security

$32B down drain at Pentagon: Military abandons big-ticket weapons as needs change
Marjorie Censer, The Washington Post

Crooks target National Security Agency
Tricia Bishop, The Baltimore Sun

Open Government

Senate passes bill to speed up FOIA requests
Josiah Ryan, The Hill

Public Health

In Shift, Feds Target Top Execs For Health Fraud
Ricardo Alonso-Zaldivar, The Huffington Post

Senators rail at big pharma's secretive lobbying
Nancy Cordes, CBS News

Teaching Med Students About Industry Influence
Ed Silverman, Pharmalot

Waste

Auditors: DHS lacks cost justification for $780 million spent on border network
Aliya Sternstein, Nextgov

Limousine liberals? Number of government-owned limos has soared under Obama
Joe Eaton, iWatchNews

Financial Sector Oversight

Washington and Wall Street: The Revolving Door
Robert B. Reich, The New York Times Sunday Book Review

Goldman Sachs names ex-Sen. Gregg to advisory post
The Associated Press

Whistleblowers

Air Force Whistleblower George Sarris Prevails in Settlement
Dylan Blaylock, The Whistleblogger

FOIA Friday: The Ties Between the SEC and Cleary Gottlieb

By BRYAN RAHIJA

This week's documents: Five post-employment statements from our SEC Revolving Door Database. 

Originating agency: Securities and Exchange Commission (SEC).

Happy FOIA Friday!

This month brought news that former Securities and Exchange Commission (SEC) General Counsel David Becker has revolved his way back into the private sector, where he'll be rejoining his old firm, Cleary Gottlieb, as a partner.

Becker noted in a public comment that the firm "is fortunate to have an extremely talented group of lawyers, many with strong experience in government service."

He's right about one thing: Becker's not the only person who left the SEC to join Cleary Gottlieb. Our new SEC Revolving Door Database features five post-employment statements by two former SEC employees indicating that they left the Commission for the firm (click on the employee's name to access each statement):

 

Full Name	Former Division/Office	Former Title	New Employer	Date of Resignation	Date of Statement
Beller, Alan	Corporation Finance	Director	Cleary Gottlieb Steen & Hamilton LLP	02/24/06	06/27/07
Prezioso, Giovanni	General Counsel	General Counsel	Cleary Gottlieb Steen & Hamilton LLP	02/22/06	05/03/07
Prezioso, Giovanni	General Counsel	General Counsel	Cleary Gottlieb Steen & Hamilton LLP	02/22/06	11/12/07
Prezioso, Giovanni	General Counsel	General Counsel	Cleary Gottlieb Steen & Hamilton LLP	02/22/06	08/20/07
Prezioso, Giovanni	General Counsel	General Counsel	Cleary Gottlieb Steen & Hamilton LLP	02/22/06	09/24/07

SEC rules require its former employees to file post-government employment statements if they plan to represent a client before the Commission within two years of leaving the SEC.

While these five statements don't necessarily point to any unethical behavior or wrongdoing, when placed in the larger context of our database, they show that the revolving door between the SEC and the industry it oversees (and those that represent it) is alive and well. As POGO Investigator Michael Smallberg noted in a recent statement, "The revolving door to high-paying jobs representing Wall Street can undermine the integrity of the SEC. It's not a stretch for the public to wonder whether the promise of future employment affects how SEC regulators treat certain firms."

Bryan Rahija edits POGO's blog.

I Owe, I Owe, I Get the Government's Dough

By NEIL GORDON

Two years ago, when the economic stimulus program under the American Recovery and Reinvestment Act (Recovery Act) was starting, POGO warned about stimulus money going to "scofflaw companies" with long misconduct histories. Now, with almost three-quarters of the $275 billion appropriated under the program for contracts, grants, and loans having been spent, a new report by the Government Accountability Office (GAO) found at least 3,700 Recovery Act contract and grant recipients that received $24 billion in funds owe $757 million in unpaid federal corporate income and payroll taxes.

GAO's report provided 15 specific examples of Recovery Act recipients (8 contractors and 7 grantees, names withheld as per GAO custom) that committed "abusive or potentially criminal activity" involving $40 million in unpaid federal taxes. The amount owed by each ranged from $400,000 to $9 million. In all, the 15 contractors and grantees received about $35 million in Recovery Act funds.

House Passes Defense Bill, Includes Amendments to Hold Pentagon Accountable

By MANDY SMITHBERGER

The House passed its version of the National Defense Authorization Act (NDAA) yesterday afternoon by a vote of 322-96. The bill authorizes $690 billion worth of spending, and includes several good government and open government government measures.

One amendment, offered by Representative Carolyn Maloney (D-NY), would clarify the Pentagon's ability to withhold information specifically related to information defined as "defense critical security infrastructure information" by creating a "balancing test," where the public’s right to know would be weighed against the public interest in withholding.

Another measure brought by Rep. John Carter (R-TX) expands whistleblower protections for Armed Services members.

You can learn more in a POGO statement released this morning, and you can find a list of amendments POGO supported going into the vote for the NDAA here.

But building on an issue we raised the other day regarding defense spending earmarks, Senator Claire McCaskill (D-MO) sent a letter to House Republicans criticizing them for failing to honor their promises to oppose earmarks and for using "non-transparent amendments" that circumvent the usual earmarking process. Neither the public nor Members of the House Armed Services Committee understood the amendments being adopted, she wrote:

Morning Smoke: Anti-Disclosure Bills Preempt Contractor Contribution Executive Order

Where there's smoke, there's fire. POGO's Morning Smoke is a collection of the freshest 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.

Money in Politics

Anti Disclosure Bills in House and Senate
John Wonderlich, Sunlight Foundation

Government Secrecy

CIA official calls for reform of secrecy system
Sean Reilly, Federal Times

Total Number of Security Clearances Still Unknown
Eleven Words in Pentagon Papers to Remain Classified
Steven Aftergood, Secrecy News

Revolving Door

Former GSA official joins Alaska Native Corp.
Sarah Chacko, Fedline

Public Health

The ‘PR Pit Bull’ And Some Of His Pharma Clients
Duke Investigates Professor Over Sanofi Contoversy
Ed Silverman, Pharmalot

Groups Sue FDA Over Use of Certain Antibiotics in Animal Feed
Bill Tomson, The Wall Street Journal

Dosed in juvie jail: Drug firms pay state-hired doctors
Michael LaForgia, Palm Beach Post

Financial Sector Oversight

Fed Gave Banks Crisis Gains on $80 Billion Secretive Loans as Low as 0.01%
Bob Ivry, Bloomberg

Former Nasdaq executive Donald Johnson pleads guilty to fraud for insider tradin

SEC broke law with Apple equipment purchase
David S. Hilzenrath, The Washington Post

Defense

USAF Wants New CSAR Birds in Service By 2017
Defense Tech

Amos: Chiefs must focus more on acquisitions
Philip Ewing, DoD Buzz

Congress

House Audit Finds Faulty Internal Accounting
Louise Radnofsky, Washington Wire

Government Documents

Updated Congressional Oversight Manual
Congressional Research Service (via Secrecy News)

Secure Border Initiative:  Controls over Contractor Payments for the Technology Component Need Improvement
Government Accountability Office

New Letter to Policymakers: Public Access to Complaint Database at Consumer Financial Protection Bureau

By BRYAN RAHIJA

The gist: Wouldn't you like to know if other consumers have had a bad experience with a bank? Wouldn't you like to be able to share your experience quickly and easily with other consumers and with the Consumer Financial Protection Bureau (CFPB)? Public access to a searchable, user-friendly complaint database at the Consumer Financial Protection Bureau (CFPB) would be hugely beneficial because it would improve individual consumers' decision-making, allow the CFPB to leverage public oversight, and ultimately improve the way the industry provides financial services and products.

Recipient(s): Ms. Catherine West and Ms. Zixta Martinez of the CFPB

Signees: POGO and 19 other groups.

Key passage: "Many of our groups have expressed in recent comments the need for researchers, academics and individuals to also have access to complaint data to be able to assist the Bureau in spotting trends before they balloon into serious problems. Imagine the benefit to all, if the CFPB had been able to detect and restrain the growth of predatory loans prior to the financial meltdown and foreclosure crisis that we are still trying to recover from today."

Key factoid: Other federal agencies, such as the National Highway Traffic Safety Administration and the Consumer Product Safety Commission, currently offer consumer access to their complaint databases.

Background info: The CFPB's central mission is to "make markets for consumer financial products and services work for Americans—whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products."

Read the letter.

Bryan Rahija edits POGO's blog.

See also: POGO Shares Open Gov Ideas with the New Cops on the Financial Beat: Elizabeth Warren and the CFPB

Morning Smoke: SEC Narrowly Approves Rules to Create Whistleblower Program

Where there's smoke, there's fire. POGO's Morning Smoke is a collection of the freshest 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.

Financial Sector Oversight

S.E.C. Adopts Its Revised Rules for Whistle-Blowers
Edward Wyatt, DealBook

Fannie, Freddie Regulator -- No to FOIA
Scott Hodes, The FOIA blog

Defense

The $1 Trillion Fighter-Jet Fleet
Sticker Shock Hits Washington as Pentagon Estimates Lifetime Cost of F-35s
Nathan Hodge, The Wall Street Journal

Second engine, F-35 programs will survive House debate
John T. Bennett, The Hill

INFLUENCE GAME: Colt aiming to keep rifle business
Richard Lardner, Associated Press

Morlock's testimony targets fellow soldier
Hal Bernton, Seattle Times

Military crime lab evidence tossed from double murder trial
Marisa Taylor, McClatchy Newspapers

Lack of Navy Oversight Led To LPD-17 Shortfalls
Carlo Munoz, Defense Daily

Nuclear Safety

Report: 'Unacceptable threat' from spent-fuel pools at US nuclear power plants
Mark Clayton, Christian Science Monitor

Energy and the Environment

WRAPUP 2-Big US oil companies face growing concern on fracking
Anna Driver and Braden Reddall, Reuters

Public Health

Retraction Reaction
Justin Ling, Halifax Media Co-op

Tapson named in Senate report, University investigates
Nicole Kyle, The Chronicle

E-mails Show Drug Company Used Third-Party Medical Groups to Influence Regulators, Undercut Rivals
Marian Wang, ProPublica

Sanofi épinglé par un rapport du Sénat US pour des aides à des scientifiques
AFP

Contract Oversight

Congress Considers Penalties for U.S. Contractors Abroad
David Ingram, The Blog of Legal Times

Pop Quiz: How Badly Was Boeing Ripping Off Taxpayers?

By MANDY SMITHBERGER and BRYAN RAHIJA

Ready for a special government contracting edition of "The Price is Right"? Have a go at our Boeing Spare Parts Quiz, where you guess how much the company overcharged the Pentagon for a variety of helicopter spare parts, as revealed in a recent Department of Defense Inspector General report.

Once you've finished the quiz, you can read up on the report here (but don't cheat and click early!). Feel free to pass it along to any other willing / potentially outraged contestants.

Mandy Smithberger is a POGO Investigator. Bryan Rahija edits POGO's blog.

Another Doctor Bought by Big Pharma

BY PAUL THACKER

Barely a month goes by that we don't hear another story about a physician taking handouts from the pharmaceutical industry. The companies typically respond that these payments are for legitimate services, or education, or for consulting. And the doctors usually protest that the money doesn’t influence their behavior.

Yeah. Right.

Well, let’s take a closer look by drilling down into a report released this morning (.pdf) by the Senate Finance Committee. Investigators working for Senator Max Baucus (D-MT) detailed how drug-maker Sanofi-Aventis lobbied the FDA to delay the approval of a generic drug that would cut into profits from the company’s blockbuster blood-thinner Lovenox, which had $4 billion in global sales in 2009.

Part of this lobbying campaign involved letters sent from the Society of Hospital Medicine, the North American Thrombosis Forum, and Duke University researcher Dr. Victor Tapson. The Senate Report said that Sanofi enlisted experts, like Dr. Tapson, to conduct “independent interaction” with the FDA. Specifically, Dr. Tapson sent multiple letters to FDA warning that generic versions of Lovenox may not be as safe as Sanofi’s brand version.

Morning Smoke: SEC Likely to Approve Whistleblower Rewards Program Today

Where there's smoke, there's fire. POGO's Morning Smoke is a collection of the freshest 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.

Financial Sector Oversight

SEC expected to act on whistleblowers
David S. Hilzenrath, The Washington Post

• Check out our Twitter feed for live coverage of the SEC's open meeting
• Watch a live webcast of the meeting

S.E.C. Leased Unneeded Space, Report Says
Edward Wyatt, The New York Times

Cheat Sheet on Bank Investigations and the Probes That Have Petered Out
Marian Wang, ProPublica

Warren and Republicans Spar Over Bureau’s Power
Ben Protess, DealBook

Senator Wants Details on SAC
Jenny Strasburg and Jean Eaglesham, The Wall Street Journal

Major banks use one lobbyist to team up on Dodd-Frank
Ryan Sibley, Sunlight Foundation Reporting Group

Nuclear Safety

Risk From Spent Nuclear Reactor Fuel Is Greater in U.S. Than in Japan, Study Says
Matthew L. Wald, The New York Times

Open Government

Open government sites scrapped due to budget cuts
Ed O'Keefe, Federal Eye

National Security

Gates’ defense spending dilemma
Philip Ewing, DoD Buzz

Public Health

Senate Panel Hits Sanofi Payments
Alicia Mundy, The Wall Street Journal

FDA Issues Draft Guidance For Investigator Conflicts
Ed Silverman, Pharmalot

Transportation

DOT Inspector General Paints a Troubling Picture of FAA and Air Traffic Controllers
The Note

Public Interest Groups Urge Lawmakers to Oppose Anti-Whistleblower Proposal

By BRYAN RAHIJA

The SEC is preparing to vote tomorrow morning on its final rule to implement the whistleblower program enacted in the Dodd-Frank financial reform bill--but efforts to gut the program are already underway.

A host of advocacy groups representing the rights and interests of, well, just about everyone except financial titans, sent a letter today urging the House Committee on Financial Services to oppose one of those efforts.

The offending proposal, a draft bill to amend the whistleblower incentives and protections programs at the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) submitted by Rep. Michael Grimm (R-NY), may be one of the worst legislative proposals we've seen in a long time. From the letter: