December 18, 2010
Dear Chairman Schapiro:
We respectfully submit this letter as a request for additional time to comment on the 180 pages of rule proposals issued by the SEC six weeks ago for the whistleblower proposals. To properly research and comment upon all the many problematic issues within such rule proposals, provide constructive solutions, as we wish to do, involves significant amounts of time. The time provided for, considering the sheer volume of rule proposals, simply was, and is insufficient to provide full, proper commentary and to suggest positive rules, so as to promote, rather than discourage the quality whistleblowers which the SEC supposedly seeks.
As an experienced litigation/securities Attorney who has already spent hundreds of, uncompensated hours (most potential whistleblowers do not have the funds to pay counsel hourly) already screening and submitting several Dodd Frank SEC whistleblower claims, we have very serious concerns about the the proposed rules. Not the least of which is the obvious fact that private law firms, such as ours, are in fact already spending hundreds of hours screening and flushing out cases ON BEHALF OF THE SEC before any such claims hits the SEC desk. Such is in effect a free service to the SEC which the SEC should be encouraging, rather than discouraging as numerous sections of its rules shockingly indirectly do and would do. As stated in our letter submitted on Dec 17, 2010, we have already received 60-70 submissions, calls, or contacts by potential whistleblowers, since the July passage of the statute, seeking to file a Dodd-Frank Whistleblower claim. Notably however, despite such significant response by the public, we have only chosen to be retained by seven (7) such clients and have filed five (5) actual claims with two (2) additional more claims to be filed in the coming days. Such by itself demonstrates that experienced, qualified whistleblower attorneys are providing a highly valuable service to the SEC in screening submissions before the SEC wastes even five minutes in review of such submissions. Such screening in effect transfers the time and resources that the SEC would have needed to devote to such potential claims and which the SEC's proposed rules claim to be a major concern ("noise") with regard to the instant statute. Such purported concern about the waste of SEC resources is also the supposed reason why the SEC states it must attempt to try to somehow limit submissions to quality leads related to securities violations. Private counsel are on the front-line attempting to assist the SEC with that very issue and yet the SEC seems to be intent on placing roadblocks and discouragement for such counsel to even accept retention on such matters.
It should be abundantly clear that the SEC staff's analysis of the amount of time they believe a whistleblower's attorney must devote to representing a whistleblower is simply a fantasy and has nothing whatsoever to do with reality. Nor does the SEC even attempt to distinguish between anonymous whistleblowers, who according to the statute must continuously speak through counsel and those that are not anonymous. Nor does the Staff appear to even distinguish the time involved in cases that are submitted versus those that are actually followed up upon by the SEC or related authorities and the enormous amount of time involved in the matters that are in fact pursued (which presumably are valid cases that the SEC would be happy were brought to their attention), which may add up to thousands of hours of time for counsel to be assist the SEC (which notably is one of the criteria for the amount of award according to the proposed rules) and travel to SEC offices in our out of state so as to engage with the Staff, accompany the witness for testimony, assist in reviewing documents with their client, etc.
We have no interest in filing what we believe to be frivolous claims which do not involve securities violations from what we believe to be credible sources. We research each case and ask most, if not all the questions the SEC would ask in reviewing such claims. Enormous amounts of time is spent in just researching, meeting with the whistleblower and determining whether to even accept retention on such claims, knowing the possible time commitment, let alone drafting the initial submission. Contrary to the false assertion by inexperienced attorneys who submitted self-serving commentary that my firm or others, similar to our firm, file "anything and everything" seeking some unknown "home-run," such is not only false and defamatory, but also blatantly contrary to our own statistics (something the other side lacks). it also simply does not make sense, either for the quality senior whistleblower who is taking a significant risk to his entire future career, or for the attorney, who does not wish to waste valuable time, to file claims that will not be pursued let alone recovered upon. Further, such would not garner a positive reputation for such attorney before the SEC which reviews all of that attorney's submissions. As such, the commentary and purported concern about purported "plaintiffs attorneys" filing frivolous claims is simply nonsensical and contrary to reality.
Of the five (5) matters which have already been filed by our firm, several have already been followed up upon by the SEC or related authorities which are directly contrary to the overall statistics the SEC presented for all claims. As a result, such demonstrates the SEC should be encouraging, not discouraging attorneys like my firm to actively seek out such whsitleblowers, screen them and assist them. However, such takes enormous time and resources to do. In addition, if the SEC or related body then confirms their interest in a submission, the time involved in representing such whistleblower increases multi-fold especially if they are anonymous. Most quality whistleblowers take advantage of the anonymous provisions of the statute, which mandates that the attorney be the mouthpiece for the whistleblower. As in such instance, not only must the attorney be the conduit to providing all additional evidence and spend countless hours on the phone and in meetings with Commission staff and/or related regulators/prosecutors, but also in reviewing additional evidence such as hundreds of pages of transcripts which the whistleblower may provide to the attorney to give to the SEC as we have already done in one case, which has not even been pursued by the SEC itself (which is the regulator where the whistleblower and counsel would obtain any bounty if pursued by them) as of yet. In addition, attorneys may have an obligation to examine and review any possible civil or criminal implications for their whistleblower client in submitting the whistleblower claim, which is not something accounted for, in way shape or form by the proposed rules, let alone do such rules provide any comfort to those whistleblowers. Yet such whstleblowers typically have the most significant quality information to provide to the SEC so as to stop any fraud, even if they are not the prime instigator or mastermind of the fraud, but rather an employee which may still open themselves up to some possible criminal or civil liability if they do come forward. Thus in theory (as demonstrated by Madoff) without such whistleblowers the fraud likely would continue for many many years, and thousands of individual victims and or pension funds would continue to be victimized who would not need to be and the SEC may never even become be aware of the fraud, let alone stop the fraud.
We suspect that if the SEC actually polled the Madoff victims, which we urge that they do to garner the empirical evidence the SEC seeks, as to whether they would rather have had an internal Madoff whistleblower come forward years before, and be paid a 10-30% bounty as well as receive in advance immunity from civil and criminal prosecution which common sense dictates such whistleblowers will want as otherwise the potential of any bounty is likely useless (something the proposed rules not only does not address but seems to incredibly outright discourage) but at the same time stop the Madoff fraud, years before hundreds of millions were lost vs. what actually happened - the overwhelming majority of the victims would, no doubt, instruct the SEC and prosecutors to pay the bounty and provide the requested immunity sought, and by doing so save future investors (and past investors) much more than any bounty, as well as prevent hundreds of thousands of other future victims of the fraud. Unfortunately the proposed rules take the opposite approach and thus, in effect, encourages such frauds to simply go on undetected under the false premise that such people will simply wait in line at the SEC and come forward simply because of the instant program which is a literal mine field for them with a lot of downside and little if any potential upside (again the odds of a bounty overall on any given submission, according to the SEC, is .39 of 1% which includes all submissions not assisted by counsel). Such does not even address the SEC's current substantial credibility problem from its own recent internal whistleblower issues which have been reported and the "revolving door" of senior SEC people/commissioners leaving to work for the very law firms that represent the very companies that are at issue or the firms themselves, an issue we raised in our meeting with the Staff but a concern not dealt with at all in the rules, as opposed to the cost of postage stamps to the whistleblower for example. At the end of the day it appears that, in its proposed rules, the SEC seeks to pit whistleblowers against victims of securities fraud. As a former financial crimes prosecutor such notion is not only unfortunate, it is very short sited and contradicts logic. However, it does serve the misleading publicity campaign of the corporate lobby to neuter the statute and hurt the investing public in the end, contrary to Congress' intent.
In substance, completing the initial submission or the new forms is a very small part of the time involved in representing the whistleblower, all the while there is a strong statistical likelihood that such claim will amount to nothing for the whistleblower or their attorney other than a waste of time (and thus money) for the attorney and risk for the whistleblower that his identity will be disclosed and his career ruined. Such is the reason why the SEC Must, unlike the instant proposed rules, both provide strong incentives, protections and comfort within its rules for whistleblowers, and encourage rather than discourage whistleblower attorneys to assist whistleblowers. Threatening, for the first time ever, to regulate attorneys assisting whistleblowers before there is any formal matter even launched by the SEC, but simply during the investigation stage, and then to even consider limiting private fee arrangements, especially after the fact (as in currently submitted cases) obviously would result in depriving whistleblowers of counsel of their choosing and serves no other purpose other than obstructing whistleblowers and appeasing the corporate attorneys whose fees are unlimited, and which the SEC for some reason takes no interest in.
We respectfully request that, due to the enormous volume of rule proposals related to the whistleblower program, that the SEC extend the comment period for three more weeks. Further, from our direct discussions with the SEC staff in September we did not understand that the SEC was continuing to meet with interested parties, post rule proposals, but now see that it in fact has - primarily if not entirely with the corporate lobby. As such, we respectfully once again request that we similarly be permitted to meet with the Staff to now discuss the actual proposed rules which were not promulgated when I first met with the Staff in September.
Although we did submit a detailed letter on December 17, 2010 at the midnight hour, as may be apparent on its face, such submission was not complete, due to time limitations. Ironically, at the same time as the deadline was approaching for submissions, we were assisting the SEC in an ongoing significant Enforcement matter related to one of the five Dodd/Frank submissions we had recently made and which time was of the essence. As such, we stress that most of the content of this submission is not simply a theoretical discussion, unlike other submissions, but impacts upon matters currently pending within the SEC and may be determinative as to whether our client(s) would be able to continue to assist the Commission with regard to such.
Thank you for your consideration and we hope that the Commission extends the comment period so that we may fully express our concerns and suggestion. Further we hope that as one of the prime counsel seeking to make the statute a success both for whistleblowers and the SEC, that the SEC agrees to meet with our office prior to the revising the current rule proposal just as it did with the corporate lobby.
Stuart D. Meissner Esq.
Stuart D. Meissner LLC