The SEC and CFTC asked Congress for more money yesterday to allow the securities and commodities regulators to have additional resources to expand efforts in registration/examination, data management & surveillance, investigations and enforcement. Today is the fifth year anniversary of the Flash Crash, when the market plummeted nearly 1,000 points very quickly, without apparent reason, before rebounding.
It was with that anniversary overhanging them that SEC Chair Mary Jo White and CFTC Commissioner Timothy Massad testified before the U.S. Senate Committee on Appropriations, Subcommittee on Financial Services and General Government regarding their requests for FY 2016 budget increases.
Among these requests, the SEC asked for more staff to review, triage and investigate incoming Form TCRs from whistleblowers. SEC Chair Mary Jo White recently applauded the success of the whistleblower program created by the Dodd-Frank Act and said that the program was getting both more tips and higher quality tips as it matures. We encourage Congress to grant that request. Hopefully, the SEC will also be able to address the issue that we discussed in one of our blog posts yesterday on the backlog of SEC whistleblower claims for awards. The fact that some have been waiting for more than two years after the SEC successfully concluded an enforcement action will be a problem as the program grows.
Although I have not looked up the figures for the SEC, the Former CFTC Commissioner Bart Chilton’s article in USA Today yesterday said that the CFTC is investigating over 1,000 individuals and entities with only a few hundred enforcement staff. If it were as simple as dividing up the files so that each person takes 5 or 10 files, then this might work. But the CFTC is pursuing investigations that may lead to document productions of hundreds of thousands of chat sessions, emails, system alerts, phone calls and other recorded evidence of their business that the CFTC must comb through in order to compile the evidence of corporate misconduct. Some of its investigations involve billions of dollars in potential settlements, including the ISDAfix, precious metals and dividend arbitration investigations. And that’s without mentioning the three that have been capturing the headlines for the past two years: Libor, Forex benchmark rates and currency manipulation.
There’s other ways to see the effect of the limited resources of these agencies. For example, the 10 organizations overseeing the Consolidated Audit Trail (CAT), a project which is supposed to allow real time monitoring of stock and option orders for manipulation, haven’t even awarded a contract to one of the six firms bidding on it. They also haven’t addressed how they will pay for the program which is expected to cost between $150 and $500 million in its first five years.
CAT is expected to help the regulators detect and prevent events like the flash crash, but it is still years from implementation. In the meantime, an in depth investigation by both the SEC and the CFTC following the market plummet and recovery didn’t reveal wrongdoing by the UK trader that is now the subject of a CFTC enforcement action.
It was a whistleblower that eventually turned the eyes of the U.S. Government to the trader that contributed to the flash crash, and I think that’s important to remember. In the event of limited resources, it’s best to put your cash where you can get the biggest return on investment. Whistleblowers have been paying off for the United States for more than 20 years under the False Claims Act. And now the Dodd-Frank Act seems to be heating up.
Congress should grant the request to provide the SEC, and the CFTC if it needs it, more money to investigate whistleblower tips and pursue enforcement actions against the companies engaged in misconduct.
If you have questions about the SEC whistleblower program or have evidence of misconduct by a company, one of our SEC whistleblower attorneys can assist you. Please contact us or call 1-800-590-4116 to speak to a lawyer at McEldrew Young.