Meet the SEC's 6,500 Whistleblowers
People Are Offering Confidential Information Under a Securities and Exchange Commission Program
By Maxwell Murphy
July 28, 2014 7:45 p.m. ET
http://online.wsj.com/articles/meet-the-secs-...tleblowers
What do four adult entertainers, 138 engineers, a handful of pilots and a pastor have in common? They all think they have hot tips about an alleged financial fraud.
They are also among the more than 6,500 people who have offered confidential information under the whistleblower program of the Securities and Exchange Commission. The agency set up the program in mid-2011 with hopes of eliciting dirt on corporate wrongdoers. It offers a bounty of up to 30% of penalties for any monetary sanctions the agency extracts that exceed $1 million.
The potential windfall has attracted tips from at least 68 countries. Nearly 3,600 of the whistleblowers listed a job title, according to information obtained by The Wall Street Journal through a Freedom of Information Act request.
Retirees were the largest group with 365 tips. Investors were second with 290 complaints. Engineers came in third.
But whistleblowers come from all walks of life. They include a diesel mechanic, an antiques dealer and a longshoreman; there's an agronomist, two people who listed themselves as "ex-wife" and a veterinarian. There are also a number of current and retired military servicemen and enough hospitality and service employees to suggest executives should watch what they say in restaurants, bars, hotels and taxis.
Overall, the agency says that it is pleased with the quality of tips it gets and that frivolous complaints haven't bogged down the system as initially feared.
"I girded myself for an avalanche of nonsense," said Sean McKessy, head of the SEC's whistleblower office.
In fact, at least 42 of the tips came from senior executives and board members, according to the listed job titles.
The program has brought in more than $150 million in restitution and fines via five cases from eight whistleblowers. That has translated to more than $15 million in payments to the whistleblowers, including a $14 million jackpot to one person. who provided evidence against Anshoo R. Sethi, a 30-year-old Chicago resident who allegedly duped about 250 investors, mostly Chinese.
In March, a U.S. District Court sided with the SEC and ordered the return of $147 million in assets to investors. Mr. Sethi and two related business entities neither admitted nor denied the allegations. Attorneys who represented Mr. Sethi didn't return phone calls.
In another case earlier this month involving "a complex area of the securities market," two unnamed tipsters raked in a combined $875,000.
Mr. McKessy says the numbers will soon grow. A "critical mass" of tips will soon yield more investigations, fines and bounties.
"We're getting close to the sweet spot," he said.
To file a complaint, informers need only go to the agency's website to fill out a six-page form or fill out an online questionnaire. They are asked to provide basic information about themselves and the alleged perpetrator, as well as details of the suspected crime and the evidence that the informers have or that may exist.
If the SEC believes federal securities laws were violated, the source is credible and enforcement action is needed, an investigator will contact the whistleblower for a series of interviews.
The process can take years and often ends in futility.
"A year ago, the head of the whistleblower office called us to say, 'Thank you for helping America. Your case made it to the top. The only thing I can say is, based on prosecutorial discretion, we've decided not to proceed,'" recalled one whistleblower, who wished to remain anonymous for fear of being blackballed by the securities industry.
He was a senior executive of a hedge fund that was a counterparty in multiple transactions with a major U.S. investment bank. After certain contracts were altered by the bank, he alleges, they should have resulted in a significant loss in an off-balance-sheet vehicle and forced the bank to restate its earnings.
"My motivation at the beginning was compensation," he said. "I was a witness to the banking fraud of the 2008 period. It needed to be corrected, and the bank's behavior needed to be corrected. And I still believe that, absent the compensation opportunity."
The SEC declines to comment on any whistleblower case.
But based on the flood of complaints and the scant number of successful cases, the vast majority of whistleblowers don't have the goods.
Retirees, including one who added "washed up" to the job description, have more free time than full-time workers, plus the ability to drop a dime on former employers without fear of retribution. The elderly are also disproportionately victims of fraud, said James Ratley, chief executive of the Association of Certified Fraud Examiners, an antifraud organization based in Austin, Texas.
"They tend to be a favorite target of scammers," he said.
Retirees also tend to frequently alert authorities, Mr. Ratley noted, because "they're more desperate" and don't have the time a younger person might to rebuild their savings after suffering fraud.
Engineers, at first blush, might seem to be an odd profession for informants, but honesty, integrity and fixing errors are drilled into them during training, said Norman Fortenberry, executive director of the American Society for Engineering Education.
"It's fundamental in our code of ethics," he said. The code states, among other virtues, that engineers "must be dedicated to the protection of public health, safety and welfare."
"It is a matter of both personal and professional pride," Mr. Fortenberry said.
The adult-entertainment industry, however, operates under an entirely different code.
Among prostitutes, secrecy is sacrosanct, said Dennis Hof, proprietor of the Moonlight Bunny Ranch and other legal brothels in Nevada.
"We have a sacred bond with our clients," he said. "Money can't take precedence."
Mr. Hof said any of his employees would be fired and disavowed if they were to release privileged information about any of the brothels' clients.
Air Force Amy, a popular Bunny Ranch mainstay whose real name is Deanne Salinger, said clients constantly reveal material, nonpublic information. At first she said she would approach Mr. Hof to see if they should invest based on any of the tips, but they agreed that it wouldn't be wise.
"I dummy up a lot, I really do," she said. "I've been around a long time and you just don't talk."
One of the most prolific whistleblowers under the program has been Yvette Barbara Baldwin, who has filed at least 10 whistleblower complaints under the occupation of "royal public official," a term she said refers to a lineage that is "Iranian, Chinese [and] Turkish, with the Greek royal lines and the Jewish lines as well."
Using that title, she has filed numerous pro se lawsuits on her own behalf, including a number against a veritable consortium of banks she alleges are keeping from her a massive inheritance she said is her birthright.
Among the evidence that Ms. Baldwin offers to prove her claims is a decades-old television appearance that she told The Journal she has been unable to obtain.
"I did an interview with Walter Cronkite," she said. "I think I was about two or three years old."
—John Kester contributed to this article.
Write to Maxwell Murphy at maxwell.murphy@wsj.com
http://online.wsj.com/articles/meet-the-secs-...tleblowers
People Are Offering Confidential Information Under a Securities and Exchange Commission Program
By Maxwell Murphy
July 28, 2014 7:45 p.m. ET
http://online.wsj.com/articles/meet-the-secs-...tleblowers
What do four adult entertainers, 138 engineers, a handful of pilots and a pastor have in common? They all think they have hot tips about an alleged financial fraud.
They are also among the more than 6,500 people who have offered confidential information under the whistleblower program of the Securities and Exchange Commission. The agency set up the program in mid-2011 with hopes of eliciting dirt on corporate wrongdoers. It offers a bounty of up to 30% of penalties for any monetary sanctions the agency extracts that exceed $1 million.
The potential windfall has attracted tips from at least 68 countries. Nearly 3,600 of the whistleblowers listed a job title, according to information obtained by The Wall Street Journal through a Freedom of Information Act request.
Retirees were the largest group with 365 tips. Investors were second with 290 complaints. Engineers came in third.
But whistleblowers come from all walks of life. They include a diesel mechanic, an antiques dealer and a longshoreman; there's an agronomist, two people who listed themselves as "ex-wife" and a veterinarian. There are also a number of current and retired military servicemen and enough hospitality and service employees to suggest executives should watch what they say in restaurants, bars, hotels and taxis.
Overall, the agency says that it is pleased with the quality of tips it gets and that frivolous complaints haven't bogged down the system as initially feared.
"I girded myself for an avalanche of nonsense," said Sean McKessy, head of the SEC's whistleblower office.
In fact, at least 42 of the tips came from senior executives and board members, according to the listed job titles.
The program has brought in more than $150 million in restitution and fines via five cases from eight whistleblowers. That has translated to more than $15 million in payments to the whistleblowers, including a $14 million jackpot to one person. who provided evidence against Anshoo R. Sethi, a 30-year-old Chicago resident who allegedly duped about 250 investors, mostly Chinese.
In March, a U.S. District Court sided with the SEC and ordered the return of $147 million in assets to investors. Mr. Sethi and two related business entities neither admitted nor denied the allegations. Attorneys who represented Mr. Sethi didn't return phone calls.
In another case earlier this month involving "a complex area of the securities market," two unnamed tipsters raked in a combined $875,000.
Mr. McKessy says the numbers will soon grow. A "critical mass" of tips will soon yield more investigations, fines and bounties.
"We're getting close to the sweet spot," he said.
To file a complaint, informers need only go to the agency's website to fill out a six-page form or fill out an online questionnaire. They are asked to provide basic information about themselves and the alleged perpetrator, as well as details of the suspected crime and the evidence that the informers have or that may exist.
If the SEC believes federal securities laws were violated, the source is credible and enforcement action is needed, an investigator will contact the whistleblower for a series of interviews.
The process can take years and often ends in futility.
"A year ago, the head of the whistleblower office called us to say, 'Thank you for helping America. Your case made it to the top. The only thing I can say is, based on prosecutorial discretion, we've decided not to proceed,'" recalled one whistleblower, who wished to remain anonymous for fear of being blackballed by the securities industry.
He was a senior executive of a hedge fund that was a counterparty in multiple transactions with a major U.S. investment bank. After certain contracts were altered by the bank, he alleges, they should have resulted in a significant loss in an off-balance-sheet vehicle and forced the bank to restate its earnings.
"My motivation at the beginning was compensation," he said. "I was a witness to the banking fraud of the 2008 period. It needed to be corrected, and the bank's behavior needed to be corrected. And I still believe that, absent the compensation opportunity."
The SEC declines to comment on any whistleblower case.
But based on the flood of complaints and the scant number of successful cases, the vast majority of whistleblowers don't have the goods.
Retirees, including one who added "washed up" to the job description, have more free time than full-time workers, plus the ability to drop a dime on former employers without fear of retribution. The elderly are also disproportionately victims of fraud, said James Ratley, chief executive of the Association of Certified Fraud Examiners, an antifraud organization based in Austin, Texas.
"They tend to be a favorite target of scammers," he said.
Retirees also tend to frequently alert authorities, Mr. Ratley noted, because "they're more desperate" and don't have the time a younger person might to rebuild their savings after suffering fraud.
Engineers, at first blush, might seem to be an odd profession for informants, but honesty, integrity and fixing errors are drilled into them during training, said Norman Fortenberry, executive director of the American Society for Engineering Education.
"It's fundamental in our code of ethics," he said. The code states, among other virtues, that engineers "must be dedicated to the protection of public health, safety and welfare."
"It is a matter of both personal and professional pride," Mr. Fortenberry said.
The adult-entertainment industry, however, operates under an entirely different code.
Among prostitutes, secrecy is sacrosanct, said Dennis Hof, proprietor of the Moonlight Bunny Ranch and other legal brothels in Nevada.
"We have a sacred bond with our clients," he said. "Money can't take precedence."
Mr. Hof said any of his employees would be fired and disavowed if they were to release privileged information about any of the brothels' clients.
Air Force Amy, a popular Bunny Ranch mainstay whose real name is Deanne Salinger, said clients constantly reveal material, nonpublic information. At first she said she would approach Mr. Hof to see if they should invest based on any of the tips, but they agreed that it wouldn't be wise.
"I dummy up a lot, I really do," she said. "I've been around a long time and you just don't talk."
One of the most prolific whistleblowers under the program has been Yvette Barbara Baldwin, who has filed at least 10 whistleblower complaints under the occupation of "royal public official," a term she said refers to a lineage that is "Iranian, Chinese [and] Turkish, with the Greek royal lines and the Jewish lines as well."
Using that title, she has filed numerous pro se lawsuits on her own behalf, including a number against a veritable consortium of banks she alleges are keeping from her a massive inheritance she said is her birthright.
Among the evidence that Ms. Baldwin offers to prove her claims is a decades-old television appearance that she told The Journal she has been unable to obtain.
"I did an interview with Walter Cronkite," she said. "I think I was about two or three years old."
—John Kester contributed to this article.
Write to Maxwell Murphy at maxwell.murphy@wsj.com
http://online.wsj.com/articles/meet-the-secs-...tleblowers
