As the SEC Finalizes Its Whistleblower Rules, One Whistleblower's Fight for Justice Continues

By MICHAEL SMALLBERG and ADAM ZAGORIN

The Securities and Exchange Commission (SEC) recently approved final rules to implement a vastly improved whistleblower award program mandated by the Dodd-Frank financial reform legislation. Under this legislation and the final rules, the SEC generally cannot "disclose information that could reasonably be expected to reveal the identity of a whistleblower."

If the program has any chance of succeeding, whistleblowers must have confidence in the SEC’s ability to protect their confidentiality. Just ask Peter Sivere.

Last year, we wrote in Politics Daily about Sivere’s experience when he came to the SEC in 2004 with what he described as "confidential" evidence of wrongdoing by his employer, JPMorgan Chase. He received a response from George Demos, an enforcement attorney in the SEC’s New York office, who assured Sivere that the SEC’s investigation would be kept confidential.

However, Demos turned around and disclosed non-public information about Sivere to JPMorgan’s counsel, who then used the information to attack Sivere’s whistleblower credentials, according to a 2009 investigative report issued by the SEC Office of Inspector General (OIG). (Although Demos’s name was redacted in the report, documents obtained by POGO confirmed that he was the attorney cited in the OIG’s investigation.)

The OIG recommended that the SEC consider taking disciplinary action against Demos, but no action was taken, as confirmed by a recent letter sent from SEC Chairman Mary Schapiro to House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA) that included an update on the SEC’s response to OIG disciplinary recommendations. In fact, Demos left the SEC and announced that he was running for Congress, touting his service as an SEC enforcement attorney.

The SEC may have let Demos off the hook, but Sivere has pressed on in his fight to hold Demos accountable. He recently filed a complaint before a New York state judicial body alleging that Demos violated the rules of professional conduct for New York attorneys. In May 2010, the Grievance Committee for the State of New York’s Tenth Judicial District told Sivere it had dismissed the complaint against Demos, but it was unclear whether a credible investigation had ever been conducted.

This morning, Larry Doyle at Sense on Cents posted a letter from the Clerk of the New York State Supreme Court stating that the investigation has now been re-opened and transferred to a different department. The letter, dated June 1, 2011, states that "[t]he investigation was initially disposed of by the Grievance Committee for the Tenth Judicial District, but upon further review, it was decided that the matter should be re-opened but transferred to another department....in order to avoid the appearance of impropriety."

We hope that a thorough investigation will finally be conducted into the allegations that Demos disclosed non-public information about Sivere. In the meantime, as the SEC tries to convince more whistleblowers to come forward with information on securities law violations, it is imperative that SEC officials hold employees accountable for violating the rules of the whistleblower award program. As Sivere remarked in a public comment on the SEC’s initial proposed rules, "those entrusted with investigating tips of potential fraud from whistle blowers must have the fortitude to do the right thing, not the easy thing."

Michael Smallberg is a POGO Investigator. Adam Zagorin is POGO's Journalist in Residence.

Comments

[Sara Noble]

I hope you will keep on this. Mr. Demos behaved unprofessionally. If the courts cannot see it this second time around, then what do we stand for? He betrayed someone who thought he was speaking confidentially to win favor with the bank.

[Bryan Rahija]

Hi Trisha,

Thank you for stopping by!

You can find out more about our staff here:

http://www.pogo.org/press-room/staff-experts.html

You can find out more about our funding here:

http://issuu.com/pogo.org/docs/pogo-annual-report-2010?mode=embed&layout=http%3A%2F%2Fskin.issuu.com%2Fv%2Flight%2Flayout.xml&showFlipBtn=true

And here's a quick rundown of our history:

http://www.pogo.org/about/30/30.html

[Trisha]

Man, it must be nice to be on a "blog" and get to smear people. Funny this is only reeopened after Demos announces he's running for office. Something tells me that if we dug a little, we'd find your "blog's" user fees are being paid by the Randolph Altschuler campaign.

Oh, and by the way, these are high-sounding titles, but are meaningless: "Michael Smallberg is a POGO Investigator. Adam Zagorin is POGO's Journalist in Residence."

The man wasn't "let off the hook." He was found not to have violated any rules and complimented for his service to the SEC. It's funny, if you're found guilty, you're guilty; if you're not, you're "let off the hook" as if you somehow got away with it.

I'm glad they're investigating this again. They can exonerate Mr. Demos again -- and then maybe you people will apologize and stop talking about it, but I won't hold my breath.