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The Rise of the Professional Whistleblower

Posted on July 28, 2016July 28, 2016 by Doug Cornelius
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With the proliferation of whistleblower regimes at regulatory agencies we should not be surprised that there are professional whistleblowers.

state street

The Securities and Exchange Commission gave its blessing earlier this year when it granted a whistleblower award to a company outsider.

This week the SEC and the DOJ announced a half billion dollar settlement with State Street for overcharging its customers on foreign currency trades. As part of its custody bank line of business, State Street offered indirect foreign currency exchange trading for clients to buy and sell foreign currencies as needed to settle their transactions involving foreign securities. State Street misleading its custody clients about this service by telling them that it provided “best execution,” or charged “market rates” on the transactions. In practice, State Street set prices largely driven by predetermined, uniform markups and made no effort to obtain the best possible prices for these clients.

FX trading had been a very lucrative area because the pricing was opaque.  It seems a little obscure for the SEC to find this nugget of compliance failure.

Apparently it didn’t find it. The SEC was apparently alerted by Harry Markopolos.

That’s the same Harry who rose to fame for writing letters to the SEC about Madoff. Harry has become a professional whistleblower. Harry has been helping State Street’s clients sue the firm to recover the FX overcharges. He comes with a big name after riding on the glory of his Madoff exploits.

I would guess that we will see a growing number of firms offering services to whistleblowers.

Sources:

  • Could Whistleblowing Be The New Short-Selling?
  • SEC: State Street Misled Custody Clients About Prices for Foreign Currency Exchange Trades
  • State Street forex settlement is notch in belt for Madoff whistleblower by Francine McKenna in MarketWatch
  • Harry Markopolos Scores Again: State Street Settles for $382 Million on Foreign Exchange Fraud
  • State Street will pay $530m to settle foreign exchange cases

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