Business | Analysis

How watchdog hurt whistle-blower

Government regulators are still tightly aligned with the big Wall Street banks

  • By William D. Cohan, Bloomberg
  • Published: 11:43 August 23, 2012
  • Gulf News

  • Image Credit: Niño Jose Heredia/©Gulf News

New York: You’ve probably never heard of Peter Sivere, a former compliance officer at JPMorgan Chase & Co.

Yet his distressing story shows — on a personal level — that for all the tough talk about better enforcement of financial wrongdoing, just how tightly government regulators are aligned with the big Wall Street banks they are supposed to keep an eye on.

In January 1998, Sivere joined JPMorgan as a surveillance analyst in the compliance department of the fixed-income group. In December 1999, Sivere was promoted to vice president and then again to be the “team leader” of electronic-communications compliance. On September 26, 2003, Sivere received his annual review and a rating of 9.63, or “great,” according to the bank’s evaluation scale.

“I consider Peter to be a brilliant surveillance analyst,” one of his colleagues wrote. “Peter is highly motivated and diligent individual with an exceptional work ethic.”

Despite that review and the promotions, things had actually started going off the rails, career-wise, for Sivere earlier that month, when then-New York State Attorney General Eliot Spitzer filed a complaint against Canary Capital Partners LLC, a (now defunct) New Jersey hedge fund and a big client of JPMorgan. The suit held that Canary had engaged in “late trading” of mutual funds — that is, it was allowed to buy shares of mutual funds at the day’s final price even though the market had closed. Canary’s late trading was akin to getting tomorrow’s Wall Street Journal today.

Responsive E-Mails

The next day, the Securities and Exchange Commission started its own investigation into late trading and asked for documents and e-mails from JPMorgan. Sivere was put in charge of a group of four internal lawyers searching for documents to provide the SEC. Several weeks later, the bank’s litigation department removed the four lawyers from the project, allegedly because they failed to find all the “responsive e-mails” called for in the SEC’s subpoena.

Sivere contests that claim. “I observed that the attorneys had discovered a number of E-mails” that JPMorgan’s litigation department “had not identified,” he wrote in an affidavit. A few weeks later, a new set of four lawyers was hired — also to be supervised by Sivere — to resume the document production for the SEC’s investigation.

According to court documents and an investigation by the Occupational Safety and Health Administration, on November 18 one of the new lawyers, Sarah Kelleher, found an e-mail that showed that JPMorgan had provided a $105 million line of credit to Canary Capital that Canary used to facilitate its late trading in mutual funds. Sivere forwarded the e-mail to three of the leaders of the compliance department. The next day Sivere and the second set of lawyers were removed from their roles finding documents to send to the SEC.

They were replaced by a team from the law firm Davis, Polk & Wardwell. This was odd, as Davis, Polk had an apparent conflict related to its providing legal advice in setting up financing vehicles to trade mutual funds for JPMorgan clients.

Sivere’s wife gave birth to the couple’s first child on January 21, 2004, and because of complications with her health, Sivere took medical leave between March 2 and April 21. On April 23, Sivere had a conversation with his supervisors who told him they were “not happy” with his performance. Throughout May 2004, as news accounts started appearing about the late-trading scandal involving Canary, Sivere became increasingly concerned that JPMorgan was not cooperating fully with the SEC’s investigation. He told his immediate boss about his growing concerns. Sivere contacted the firm’s compliance department to find out what e–mails had been turned over to the SEC, but did not receive a reply.

Internal Investigation

On June 1, Sivere was given the choice of either leaving the firm immediately as a result of his “insubordination” or continuing to work at the firm under a “final written warning” agreement. On June 4, Sivere told a compliance officer at the bank that he thought he was being retaliated against for questioning the firm’s cooperation with the SEC investigation. JPMorgan opened an internal investigation, and placed Sivere on paid leave, with no access to his computer, pending its outcome.

On June 13, Sivere contacted an SEC lawyer, George Demos, by e-mail, seeking to become a whistle-blower. Sivere asked if he would be able to collect whatever “bounty” the law permitted for trying to do the right thing. (He used the indelicate e-mail address Bountyman04@aol.com.)

Demos informed Sivere that no bounty was available; yet Sivere decided to turn over e-mails he had come across in his investigation to the SEC anyway. Sivere believed the e-mails showed JPMorgan had violated securities laws. (Sivere also later filed a complaint with OSHA, claiming that he had been discriminated against for turning over e-mails to the SEC.)

Not surprisingly, Sivere was demoted from team leader when he returned to work on July 19. But he continued to monitor e–mails about the SEC’s investigation into late trading. In early October, he accessed more e-mails from JPMorgan executives relating to the firm’s relationship with Canary, including one dated October 4, from Jamie Dimon, now the chairman and chief executive officer. Dimon’s missive asked Joan Guggenheimer, co-general counsel, to tell him the “exact timing” of the firm’s involvement with Canary and the loans that were made to help Canary finance its late trading of mutual funds.

On October 7, JPMorgan fired Sivere for inappropriate use of the firm’s e-mail. OSHA eventually determined that JPMorgan had retaliated against Sivere and ordered him reinstated. Instead, Sivere and the bank settled for $350,000. After an arbitration hearing, JPMorgan was ordered to change the description of Sivere’s firing on his U-5 form from “mutual consent” and “for accessing e-mails without authorisation” to “a disagreement regarding the scope of his authority.” Sivere struggled to find work, but is now with Barclays Plc in New York. “Today, I believe my past experience and desire to do the right thing should be an asset,” he told me recently. “Wall Street executives talk about ‘tone at the top’ and ‘culture’ but, unfortunately, the people who monitor those things are at risk more than most people realise.” (As I have said before, I too worked for JPMorgan and unsuccessfully took it to arbitration over my firing in 2004.)

Aiding Lawyers

That would be the end of the horrific story, except that as part of the OSHA investigation, Sivere discovered in May 2005 that Demos, the SEC lawyer, had informed JPMorgan’s lawyers that Sivere had asked the SEC for a bounty as a whistle-blower. Demos also gave permission and “actually encouraged” that this bit of information be used in the lawsuit between JPMorgan and Sivere.

This was, of course, blatantly in violation of SEC rules. The SEC’s inspector general investigated the matter and corroborated that Demos had ratted out Sivere, but the agency took no disciplinary action against Demos.

As usual, truth is stranger than fiction. The epilogue to the story is that early this year, Demos announced he was seeking the Republican nomination for a seat in the US House from an eastern Long Island district. His slogan: “Fighting for Freedom.” In May, Demos gave up his fight, claiming that he wanted to spend more time with his fiancée.

With a little luck, the SEC will adopt Demos’s unused slogan in what little effort it makes these days to crack down on Wall Street wrongdoing.

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