On Thursday, the Securities and Exchange Commission released its
annual report on the activities of the whistle-blower office it
established in late 2011, at the direction of the Dodd-Frank Act. The office's eight lawyers received 3,001 whistle-blower
tips in the SEC's fiscal year 2012, which ended on Sept. 30. A
total of 547 tips involved alleged misconduct in corporate
disclosure, 465 alleged offering fraud and 457 related to stock
manipulation. At least one bore fruit: In August, the SEC made
its first bounty payment to a whistle-blower whose tip led to a
judgment of more than $1 million. The agency said the
whistle-blower office is processing an undisclosed number of
additional whistle-blower bounty applications.
In an odd quirk of timing, on the same day that the SEC
reported on the whistle-blower tips it has received, it was hit
with a $20 million suit by a former member of its own inspector
general's office. David Weber, who was terminated last month
from his post as assistant IG for investigations, claims he was
fired for blowing the whistle on misconduct by former IG David
Kotz, the aggressive ethics cop known for probes of the SEC's former general counsel David Becker and enforcement director Robert Khuzami.
Weber's 77-page complaint, filed by his lawyers at Joseph,
Greenwald & Laake in federal district court in Washington,
portrays the SEC IG's office as a hotbed of sexual tension and
professional backstabbing -- irony indeed, considering that the
office's entire purpose is to police the conduct of SEC
employees. From Weber's telling, the top echelon of the IG's
office seemed to spend a disproportionate amount of time on
internecine accusations and investigations. His own downfall, he
asserts, was triggered by his report to the five SEC
commissioners that the acting IG, who allegedly had a sexual
history with Kotz, was covering up Kotz's conflicts of interests
in high-profile investigations. (Seriously, the allegations in
Weber's complaint could be the basis of a prime-time soap
opera.)
Kotz had already resigned by the time Weber went to the
commissioners in March 2012, but Weber claims that the acting IG
and other higher-ups in the office began a campaign of
retaliation against him. He asserts he was accused of
threatening others in the office and stripped of support staff.
In May, only five months after Weber began working at the SEC,
he was placed on administrative leave and barred from entering
his office by armed guards. (According to Weber, the head of SEC
security, who participated in the action against him, was
himself under investigation by the IG's office, as was the SEC's
chief operating officer, who signed the order placing Weber on
leave.) After Weber was removed from the SEC building, press reports about him wanting to carry a gun to work began to
surface. Weber claims in his suit that the press leaks were
designed not only to punish him professionally but also to
impair his chances of gaining full custody of his three children
in a dispute with his first wife.
Weber claims that SEC Chairman Mary Schapiro -- also
allegedly under IG investigation for lying in congressional
testimony -- perjured herself when she told Congress in the
spring of 2012 that Weber was found to be a security risk. (The
security assessment, according to Weber, was conducted by a
contractor whose ethics he had questioned, but he claims that
the assessment nevertheless concluded that he presented a low
risk of violence in the workplace.)
The SEC ultimately asked the inspector general of the U.S.
Postal Service to investigate Weber and his allegations. As
Reuters reported in a story about the USPS report on Oct. 5, the
outside investigation found that Kotz may have had conflicts of
interest in key investigations, as Weber had alleged. The report
also, according to Reuters, "did not substantiate allegations
that Weber created a hostile work environment."
Weber's complaint said that he regarded the USPS report as
vindication, but, despite its conclusions, he was terminated on
Oct. 31. His lawyer, Cary Hansel of Joseph Greenwald, said Weber
was fired for supposedly talking about bringing a gun to the
office, even though he was supposedly cleared by the outside
investigation.
Whatever you think of Weber's allegations -- and they are,
admittedly, hard to swallow in their entirety -- his complaint
is a catalog of the potentially ruinous consequences of making
waves. Whistle-blowing may be in vogue, with tipsters who alert
the federal government sometimes earning millions of dollars,
but it's not an easy path.
"This is a classic case of whistle-blowing, a horrible
example of what can happen," said Weber lawyer Hansel. "I
believe the SEC's intent was to send a message to other
whistle-blowers" inside the agency. Hansel said that as a result
of the media leaks about Weber's threatening behavior and his
ultimate termination, Weber is "effectively unemployable,"
despite almost 20 years of service as a government lawyer. (He
has started a firm, Goodwin Weber, with his current wife.)
Weber's custody case has also suffered, Hansel said. "It's one
thing to attack a man and his career, it's another to affect his
family life," he said. "That's disgusting."
An SEC representative said in an email response to a request
for comment that the agency is looking forward to filing a
response to Weber in court. He declined additional comment. I
left messages with Weber and Kotz but didn't hear back.
(Reporting by Alison Frankel)
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