<i>Furey</i> Against the SEC

Kathleen Furey had an upward career trajectory at the Securities and Exchange Commission (SEC). She started at the SEC's New York office in 2004. In 2005 she got a promotion. In 2006 she got a promotion. Then in 2007, the promotions stopped.
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Kathleen Furey had an upward career trajectory at the Securities and Exchange Commission (SEC).

She started at the SEC's New York office in 2004.

In 2005 she got a promotion.

In 2006 she got a promotion.

Then in 2007, the promotions stopped.


In 2007, Furey went to the SEC's inspector general with a complaint.

The complaint was: her bosses weren't pursuing investment management (IM) cases.

Furey worked at the SEC's Office of Compliance, Inspections and Examinations in New York.

And she presented evidence to her supervisors about an investment management (IM) case she had been investigating.

Her supervisor, George Stepaniuk, the assistant regional director of the New York office, told Furey "we don't do IM cases."

Furey decides to appeal to the higher ups at the SEC.

She appeals to David Rosenfeld. No action.

Next stop: Mark Schonfeld.

Schonfeld tells her: you have an option. You can withdraw your complaint, or you can go and tell it to the IG, David Kotz.

She goes to Kotz.

Stepaniuk denies telling Furey, "We don't do IM cases."

Stepaniuk says he has IM cases under investigation.

But no case matures.

Until the Bernie Madoff case explodes and embarrasses the SEC.

Then Stepaniuk starts doing IM cases.

In a nutshell, Furey was being promoted, an ideal employee, until she complained to the Inspector General.

Then the SEC retaliated against her.

Now she's doing SK‑16 level work.

But is being paid for doing SK‑14 level work.

Furey wants to be paid for the work that she's doing.

That's Furey's case, as argued in a complaint she filed against the SEC with the Office of Special Counsel.

And according to an interview with Gary Aguirre, her attorney.

Aguirre knows something about blowing the whistle at the SEC.

Aguirre was with the SEC in 2004 and 2005.

"My first case there was an investigation of the Pequot hedge fund for insider trading," Aguirre told Corporate Crime Reporter in an interview last week. "Pequot had been the largest hedge fund in the world. There were twenty or so referrals. By the summer of 2005, I had boiled it down to two cases. The suspected tipper on one of the cases was the incoming CEO of Morgan Stanley. And when I tried to pursue that, there was push back from the top. And when I pushed back I got fired. It wound up with a Senate investigation. And eventually, I was able to collect the evidence and submit the evidence and get the investigation re‑opened. And eventually, Pequot and its CEO were charged with insider trading."

His whistleblower case settled in 2010, a month after Pequot settled its case.

"I received at that time the largest settlement a federal employee whistleblower has ever received through the Merit System Protection Board, where those cases are decided," Aguirre said. "It was over $700,000. All of my salary for the past years plus attorneys fees."

Aguirre is currently in private practice in San Diego, California.

He represents whistleblowers involving financial institutions, whistleblowers in regulatory agencies that oversee the financial industry, and victims of market abuse and fraud.

We asked the SEC about Furey's lawsuit.

And they sent this statement:

"As a general matter, jobs are not automatically filled when someone leaves, but are approved when budgetary resources and strategic priorities permit. When positions are approved, they are typically posted so all eligible candidates can apply, and so that the agency can choose from the broadest pool of qualified candidates. The vacant position you asked about was recently approved for posting, which should occur in coming weeks."

It looks like they are going to post this position and Furey will be able to apply for it.

"The invariable reaction by the SEC, when they find that a classification audit has validated that an SEC employee is operating above their pay grade, is to promote that person to that pay grade," Aguirre said.

Such a classification audit validated that Furey was operating above her pay grade.

"It has been done at least a dozen times and in a dozen times, they promoted the person. This is the only case where they didn't do that."

"This vacancy has been open since May 2011."

If it has been open since May 2011, why are they only posting it now?

"You would have to ask them. But I would say that since the media reported the filing of the case, the SEC has decided they had better do something. So, they have published an announcement."

"When I say the position has been open since May 2011, that's not me getting poetic. If you open the classification audit and read the first paragraph, it says that there is a vacancy open since the prior occupant of that position was promoted."

"It has been sitting there for two years. And during those two years, Kathleen has been performing those responsibilities."

You are saying that part of the retaliation is not posting that position?

"The retaliation, the reprisal, is that in her case and her case alone, of a dozen cases, they are departing from the established practice, only because there is a whistleblower involved who blew the whistle on the fact that the SEC wasn't handling Madoff style cases five years ago."

Aguirre says that his client's supervisors said they didn't bring IM cases and didn't bring IM cases for over ten years.

In response to this, the SEC sent us a long list of cases they say they did bring.

"I've been over every one of those cases," Aguirre said. "Thirteen of the fourteen of those cases were brought by people other than the Stepaniuk group. The fourteenth case was brought by Stepaniuk in March 2009, exactly as we said, three months after the Madoff case broke."

There was an attempt to settle this case about a year ago in 2012.

"There are winners and losers in every case," Aguirre says. "You obviously can't predict the outcome. So, it's better to settle to get a just resolution for your client. We agreed conditionally to the mediation. However, we asked the SEC as a gesture of good faith to produce the key records relating to this issue, the emails between her supervisors, the emails about the desk audit, the e‑mails to and from Stepaniuk at the key points in time. And they refused to turn those over."

"My own experience from my own case is that I had to get those e‑mails to prove my case."

Didn't you already have them?

"If you go back to my Senate testimony, I made a good case explaining what happened. But that was not the case that was reported in the Senate report. The Senate investigators got the internal e‑mails that I never saw."

"When management decides they are going to engage in a reprisal against a whistleblower, they don't invite the whistleblower. They don't copy them on the e‑mails. But those e‑mails exist. I got them in my case. And they conclusively proved the reprisal."

Is the SEC's posting of this vacancy in response to the recent media coverage of this case?

"The timing beyond a shadow of a doubt establishes that," Aguirre says. "Why would they have her performing these responsibilities for two years while this position was vacant, refusing to elevate her pay level to the duties she was performing? And then we file the case, the media covers it, and suddenly the SEC says, gee whiz, we now have an announcement in the works."

Aguirre is not a fan of Mary Jo White, the new chair of the SEC.

"Mary Jo White was the person who represented the board of Morgan Stanley (when Aguirre was investigating Pequot)," Aguirre says. "She called Linda Thomsen, who was then the Director of Enforcement. And Mary Jo White says Morgan Stanley wanted to re‑hire John Mack and the fact that there was an SEC investigation of John Mack was problematic in re‑hiring him."

"According to the Senate report on my case, the investigation of John Mack immediately stopped after that phone call from Mary Jo White."

"I'm not on the Mary Jo White bandwagon because she represents Wall Street. And the last time I looked, it was the folks on Wall Street who brought us the 1929 crash, and it was the folks on Wall Street who brought the nation to its knees in September 2008."

If you were making the appointment, what type of person would you appoint as chair of the SEC?

"I would try to get away from pinning a badge on somebody who represents Wall Street and making them the Sheriff," Aguirre says.

"The U.S. Attorney in the Southern District of New York has similar problems. They have oversight over Wall Street. And those guys rotate right in and out of Wall Street."

"The SEC should be looking at Wall Street, naked shorting, market manipulation. And most of all, the fact that there hasn't been a single Wall Street CEO, CFO, or any high ranking member of the Wall Street elite who has been prosecuted either by the SEC or by the Department of Justice."

And what's Aguirre's explanation?

"You see that the SEC has made a decision not to go after the banks. The defense is ‑‑ if you prosecute the banks they may collapse. That's not true. We prosecuted the heads of the banks in the 1930s. We prosecuted the heads of the savings and loans associations in the 1980s."

"Wall Street has put its people in exactly the right places for there not to be any prosecution," he says. "If you are a Wall Street banker, who do you want at the SEC? You want Mary Jo White. You want Rob Khuzami."

Aguirre says that "the whistleblower is an antidote to the revolving door."

"The revolving door is people coming to the SEC and using it as a stepping stone to go back to Wall Street with an enhanced Rolodex of people within the SEC. And that's extremely valuable."

"Very often it's those same people who are friendly to Wall Street. How many CEOs of Wall Street banks has the SEC gone after? Zero."

"It's the folks at that high echelon that rotate in and out of the banks and in and out of the law firms that represent the banks. If there are going to be favors given, they are going to be given out at that level."

"What happens with whistleblowers is that they are blowing whistles on the favoritism that Wall Street gets. And that puts them in conflict with the people who revolve in and out of the revolving door. And it's dangerous because the people who rotate in and out of the top have influence, they have power."

For the complete Q&A format Interview with Gary Aguirre, see 27 Corporate Crime Reporter 21(12), May 27, 2013, print edition only.

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