The Project On Government Oversight (POGO) Blog

Interview: David Kotz, Former SEC Inspector General

By JAKE WIENS

As the General Services Administration (GSA) conference scandal continues to unfold, with new and shameful evidence of government waste and misconduct emerging seemingly every day, the spotlight has once again turned to the important work of Inspectors General (IGs), the federal government's independent watchdogs.

The scandal, which was first uncovered by the GSA IG, has led to the resignation of GSA’s top official, the firing of several more GSA employees, and continued criminal and congressional investigations into the matter. That the GSA IG published a report with such obvious political implications highlights the significance of IG independence and credibility, two qualities POGO has argued become diminished when an IG is led by a temporary, rather than a permanent official.

But unfortunately, IG leadership positions at many key agencies have been vacant for years. One of the current vacancies is at the Securities and Exchange Commission (SEC), which failed to prevent many of the abuses involved with the financial crisis. The SEC IG position became vacant when David Kotz resigned in January following a tenure marked by hard-hitting investigations, including an evaluation of how the SEC missed the $50 billion Bernie Madoff Ponzi scheme. Kotz’s leadership earned the admiration of Congress and groups like POGO, but caused tension with some current and former SEC officials who had grown accustomed to operating without scrutiny.

POGO put five questions to Kotz on his tenure as SEC IG and the impact on oversight caused by IG vacancies.

OFPP Pretends to Grudgingly Raise Contractor Executive Compensation Cap by 10 Percent

By SCOTT AMEY

Last week, the Office of Federal Procurement Policy (OFPP) raised the amount the federal government will reimburse or price into government contracts for contractor executive compensation to $763,029. The previous cap was $693,951, and the cap has been the subject of many attacks by Congress. Previously, the Obama Administration has stated that the cap should be reduced to $200,000, which would be in line with the pay of Cabinet officials.

What is most surprising about the increase in the cap is how it contrasts with the language contained in the Federal Register notice. Despite the increased cap, OFPP goes to great lengths to point out that the cap “does not limit the amount of compensation that the contractor actually pays to its executives; contractors can, and do, provide compensation to their executives that exceed the statutory benchmark compensation amount.” The notice also calls attention to the substantial increase to the cap over the years and asks Congress to protect taxpayers from paying this ever increasing contractor subsidy. In fact, the cap could be adjusted again to approximately $800,000 for the current fiscal year.

OFPP claims that it had no choice but to raise the cap, as the statute that authorizes setting the cap states that it will be determined annually. However, OFPP has rarely felt constrained in interpreting statutes in a manner most advantageous to interested parties, primarily contractors in this case. It has for example, shown no similar compulsion to require contractor inventories or provide insourcing guidance despite the existence of statutory language.

NRC Commish's Stunning Lack of Candor Should Make President Rethink Renomination

MIA STEINLE

As the end of Kristine Svinicki's term on the Nuclear Regulatory Commission (NRC) approaches, the White House has announced that President Obama will nominate the Republican for another term. However, Senate Majority Leader Harry Reid (D-NV) is speaking out against the nomination, saying that Svinicki lied to Congress about her involvement in a controversial Department of Energy (DOE) project during her tenure there.

As Huffington Post recently reported, Reid’s spokesman said that the Senator opposes Svinicki “because she lied to Congress about her past work on Yucca Mountain,” a DOE nuclear waste repository project that was ultimately cancelled by Congress in 2011 after many years of opposition from Reid, among others.

It’s obvious that Svinicki was neither clear nor forthcoming about her involvement on the project during her 2008 confirmation hearing for the NRC. Senator Barbara Boxer (D-CA), chairman of the Senate Environment and Public Works Committee, said in the hearing that she had concerns about Yucca Mountain due to public health risks, and she later asked Svinicki if she had worked on “transportation and waste disposal issues related to Yucca Mountain” during her time at the DOE’s Civilian Radioactive Waste Management Office. As Huffington Post noted, “Svinicki gave a drawn-out answer”:

Morning Smoke: No Secret That F-35 Joint Strike Fighter is a "Calamity"

MORNING SMOKE

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

National Security

The Jet That Ate the Pentagon
Winslow Wheeler, Foreign Policy 

House Slams Navy on 'Lack of Transparency' on Littoral Combat Ship
Carlo Munoz, The Hill

House Approves Bill to Boost Cybersecurity Research
Josh Smith, NextGov

USN's LSC Still Getting Its Sea Legs
Christopher P. Cavas, Defense News

Open Government

Government Appeals Court-Ordered Release of Classified Document
Steven Aftergood, Secrecy News 

Government Oversight

The C.I.A.'s Misuse of Secrecy
Jameel Jaffer and Nathan Freed Wessler, The New York Times

Nuclear Oversight

The Federal Government's $10 Billion Plutonium Boondoggle
Joe Cirincione, The Atlantic

House of Representatives Considering Bill to Weaken Oversight of Nuclear Weapons Labs
Matt Bewig, AllGov

Financial Oversight

Lehman Bros. Pay Report Bring Calls for Reform
Walter Hamilton, Jim Puzzanghera and Andrew Tangel, The Los Angeles Times

Largest U.S. Banks Resist Federal Reserve's Credit Limits
Cheyenne Hopkins, Bloomberg

Amendment Would Force Navy to Come Clean about Littoral Combat Ship

By ANDRE FRANCISCO

A House Armed Services Subcommittee has unanimously passed an amendment to require the Navy to provide a full briefing on its troubled and expensive close-to-shore combat ship program.

The amendment comes on the heels of a letter POGO sent to leaders of the House and Senate Armed Services Committees calling for the elimination of one variant of the Littoral Combat Ship (LCS).

Our letter called for one LCS variant to be eliminated because photos and documents obtained by POGO show numerous cracks and evidence of corrosion in the hull of the USS Freedom, the first vessel Lockheed delivered in the LCS program.

Non-Federal Employee Whistleblower Protection Act Clears Committee

By SUZANNE DERSHOWITZ

On Wednesday, the Senate Homeland Security and Governmental Affairs Committee (HSGAC) passed a bill that would expand much-needed whistleblower protections to all non-federal recipients of federal funds. If passed, it means that any contractor, subcontractor, or grantee who speaks out against the misuse of federal funds may not be discharged, demoted, or otherwise discriminated against as reprisal for blowing the whistle.

POGO has long advocated to protect federal contract whistleblowers and taxpayers, and we have been supporting this legislation since it was first introduced by Senators Claire McCaskill (D-MO) and Jim Webb (D-VA). If passed, the Non-Federal Employee Whistleblower Protection Act of 2011 (S.241) will become one of the most broad-ranging government accountability reforms in history.

“I think we’ve learned over and over and over again that whistleblowers are taxpayers’ best friend,” McCaskill said on the floor on Wednesday, “and we are really missing the boat if we isolate whistleblowers within the government from whistleblowers within the contracting community.”

POGO agrees wholeheartedly.

House Subcom Proposes Dramatic Shift Toward Self-Regulation of Contractors Managing Nuclear Weapons Complex

By PETER STOCKTON and ROBERT ALVAREZ

Yesterday, the House Armed Services Subcommittee on Strategic Forces reported legislation that would seriously undermine health, safety, and financial accountability of the Department of Energy's (DOE) nuclear weapons program. Managed within DOE by the semi-autonomous National Nuclear Security Administration (NNSA), the nuclear weapons complex operates sprawling laboratories and production facilities in New Mexico, Nevada, California, Missouri, Tennessee, Texas, and South Carolina. At more than $8 billion this year, nuclear weapons activities command about 30 percent of the agency’s annual budget. 

At the heart of the sweeping changes in this legislation, the House Defense Authorization Bill for fiscal year 2013, are several requirements, including:

• A shift to “performance-based” oversight, which would eliminate health, safety, and financial standards that impose fines and penalties for violations. The subcommittee cites the success of this model in the private sector, but avoids the facts that, unlike the private sector, nuclear weapons facilities are ultra-hazardous, have very large radioactive waste legacies, excess cancer and beryllium disease among its employees, a long history of safety problems, and contractor mismanagement enabled by self regulation. For more than 20 years, the Government Accountability Office (GAO) has listed DOE’s nuclear weapons program on its “high risk” list of programs most vulnerable to waste, fraud and abuse.


• Establishment of a “National Security Administration Council” made up of weapons contractors to look over the shoulder of the DOE and NNSA and then make recommendations regarding “scientific and technical issues related to policy matters and on operational concerns, strategic planning and development of priorities.” The council will have the authority to require the Secretary of Energy to respond to its recommendations within 60 days. This gives contractors, especially from the weapons labs, an unprecedented oversight role of an inherently government function.

Morning Smoke: House Demands Transparency from Navy on LCS after POGO Report

MORNING SMOKE

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

National Security

HASC Demands Navy 'Fess Up On LCS Problems
Sydney J. Freedberg Jr., Aol Defense

Why to Cancel a Pentagon Procurement Program
Dan Ward, Battleland

House Says No to More Base Closures
Jeremy Herb, The Hill

House Panel Blocking Pentagon's Retirement of Global Hawk Drones
Jeremy Herb, The Hill

House Proposes Keeping 3 Ships Slated to Retire
Charles Hoskinson, Navy Times

Missile Defenses Hobbled by Uncertainties
R. Jeffrey Smith, iWatch News

Financial Oversight

Eileen Foster, Former Countrywide Executive, Calls for Investigation into Cover-Ups
Dan Froomkin, The Huffington Post

AIG May Not Be as Healthy as It Looks
Roben Farzad, Businessweek

Whistleblower Issues

SEC Disputes WSJ Report That it Blew Whistleblower's Cover
Bruce Carton, Compliance Week

Is the SEC's Whistleblower Program Working?
Bruce Carton, Securities Docket

GSA Scandal Won't Help Whistleblowers, Some Fed Workers Say
Corey McCarran, GovLoop

Foreign Corrupt Practices Act

Bristol-Myers Subpoenaed By SEC in FCPA Probe
Samuel Rubenfeld, The Wall Street Journal

Lt. Col. Danny Davis, Camp Lejeune Documentary and Other Whistleblowers Honored at Ridenhour Awards

Lt. Col. Daniel Davis

By DANA LIEBELSON

Eileen Foster, a former senior executive for the national's largest mortgage provider, Countrywide Financial, didn't plan on getting labeled a whistleblower. She was hired to investigate allegations of wrongdoing by company employees. But when she did her job and revealed large-scale fraud within the company—the kind that led to the 2008 financial crash—she was fired for telling the truth.

Army Lt. Col. Daniel Davis never set out to be a whistleblower either; he simply saw a discrepancy between what senior officers were telling Congress about the war in Afghanistan and the actual conditions on the ground. Refusing to abide by the idea that “the truth was negotiable,” he decided to go to Congress and the media to set the record straight.

Foster and Davis were just some of the truth-tellers honored yesterday at the 9th annual Ridenhour Prizes. The ceremony, hosted this year by POGO Executive Director Danielle Brian, recognizes those who champion the truth and uphold the spirit of Ron Ridenhour, the former U.S. Army helicopter gunner who exposed the My Lai Massacre based on accounts he had heard from fellow soldiers during the Vietnam War. Each prize comes with a $10,000 stipend.

 

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“This is the most threatening environment for whistleblowers in decades—this year’s prizewinners are heroes that demand to be heard” said Randy Fertel, President of the Fertel Foundation, which cosponsors the awards along with the Nation Institute.

One of this year’s prizes went to Rachel Libert and Tony Hardmon, the filmmakers behind Semper Fi, Always Faithful, which chronicles Master Sgt. Jerry Ensminger’s quest to get to the bottom of the Marine Corps’ cover-up of the deadly water contamination at Camp Lejeune.

“There are factions that call people ‘unpatriotic’ for holding military leaders accountable,” Ensminger said at the event. “But telling the truth is many times harder than going along with the status quo.”

Morning Smoke: What Scares Corporate America? Anti-Corruption Laws

MORNING SMOKE

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

Foreign Corrupt Practices Act

The Corruption Law that Scares the Bejesus Out of Corporate America
Jordan Weissman, The Atlantic

National Security

LCS Vigorously Defended by U.S. Navy
Christopher P. Cavas, Defense News

Navy Grounds Drone Copters, Then Spends Quarter-Billion to Buy More
Spencer Ackerman, Danger Room

Defense Department Must Prepare for Deeper Budget Cuts
David Berteau and Clark Murdock, National Defense Magazine

Whistleblower Issues

Proposed Whistleblower Protections for Contract Employees Passes Committee
Sarah Chacko, Federal Times 

SEC Faces Questions About Tipster Policy
Jenny Strausburg and Scott Patterson, The Wall Street Journal

Financial Oversight

Lawmakers Support Shifting Financial Oversight
Ben Protess, The New York Times

At House Hearing, Schapiro Says Cost Analyses Are Slowing SEC's Work
Edward Wyatt, The New York Times

SEC Reduces Spending on Reform Consultants
Sarah N. Lynch, Reuters

Lobbying

Sequestered Cuts Keep K Street on High Alert
Kevin Bogardus, The Hill

Nuclear Energy

Relax, It's Just a Run-of-the-Mill Nuke Spill
Dave Lindoff, CounterPunch

Here We Go Again: SEC Reveals Whistleblower's Identity to Company under Investigation

By MICHAEL SMALLBERG

UPDATE: The SEC has responded to this post below.

In an apparent case of history repeating itself, the Securities and Exchange Commission (SEC) has failed once again to protect the identity of a key whistleblower, even as the agency tries to encourage more whistleblowers to come forward with tips about financial industry misconduct.

The Wall Street Journal reported yesterday morning that an SEC attorney “inadvertently revealed the identity” of a whistleblower to his former employer during an investigation of Pipeline Trading Systems LLC.

The whistleblower, Peter Earle, worked at Milstream Strategy Group LLC, a Pipeline-affiliated trading entity. Pipeline recently paid $1 million to settle SEC charges alleging that the company failed to disclose to customers of its “dark pool” trading platform that Milstream was filling most of the orders.

Earle provided the SEC with a notebook in early 2010 after he had left the company that helped guide the agency's investigation. Later that year, Daniel Walfish—an attorney at the SEC’s New York Regional Office—provided Earle’s notebook to Gordon Henderson, who headed up Milstream. Henderson—who already had suspicions about Earle—was easily able to recognize Earle’s handwriting, according to the Journal.

Senators Urge Pentagon to Cap Service Contractor Spending

Sens. Sherrod Brown and Kirsten Gillibrand.

By MELANIE KAUFMAN

Today, Senators Sherrod Brown (D-OH) and Kirsten Gillibrand (D-NY) led 24 other Senators in sending a letter to Secretary of Defense Leon Panetta expressing concern about the Department of Defense’s (DoD) decision to cut back the civilian workforce to fiscal year 2010 levels, without making a comparable reduction of the contractor workforce. The Senators’ letter states that such downsizing may incentivize DoD to use contractors instead of civilian employees, even in cases where contractors cost more money. POGO found last fall that on average, service contractors cost taxpayers nearly twice as much as in-house employees for comparable work.

To avoid wasting taxpayers’ dollars, the Senators urged Secretary Panetta to make decisions about insourcing and outsourcing job functions on the basis of the “law, cost, policy, and risk, and not because DoD managers simply have fewer civilian employee slots.”

The Senators’ letter is a timely reinforcement of a similar letter Representative Maurice Hinchey (D-NY) and 130 other House Members sent to Secretary Panetta last month, and follows a recent Senate Subcommittee hearing on the cost of service contracting.

The Senators’ recommendations mirror those proposed in Rep. Hinchey’s letter (which POGO detailed here) and are as follows: