In-Depth

A whistleblowing choose-your-own adventure.

“Oh, and one more thing: Try to use Skilling Securities for trades. Not all the time, but whenever it makes sense. They’re good.”

Huh. OK. Overall, your six-month review went pretty well. Boss seems happy; numbers are good; and the culture—it’s so refreshing that people actually hang out with each other here. Even if Friday mornings are kind of rough after team-drink Thursdays. Most of all, the money’s great.

But the broker-dealer thing. What was that about? So you ask your new buddy, who’s also on the equities desk but has been here for ages.

“Skilling, yeah, I use them about a third of the time. Don’t be weird about it, but it keeps the boss happy. They’re good.” 

Fast-forward six months. The one-year review, weirdly not so good. It isn’t your numbers—those have been top-tier—but your manager kept mentioning “cultural fit” and the “the way we do things here.” Later, your friend pulls you aside. “Look, just use Skilling sometimes. Every place has its quirks, and here… Just think of it as the cost of doing business.”
  

So What Do You Do? 

First off, know that this situation—and myriad ones like it—happens all the time.

Roughly one in five people reading this article has personally witnessed illegal or unethical activity while at work, according to the most robust industry ethics survey conducted of late. And those are just the people willing to admit it. Nearly one in four said transgressions are sometimes necessary in order to succeed in financial services. More still (32%) felt compensation structures pressure them to violate ethical and legal standards.

CIO-Sept-2015-Story-F-SaySomething-Jonathan-Bartlett.jpg Art by Jonathan Bartlett

More than 1,200 industry professionals responded to the email survey, suggesting that financial professionals do want to say something about illicit behavior. That said, 25% of the high earners ($500,000-plus per year) have signed contracts prohibiting them from doing so to the authorities. The survey, conducted last winter by Notre Dame University and law firm Labaton Sucharow, attracted major coverage, including from the New York Times, Washington Post, and NPR.

But for all the media attention and personal experiences, experts say that few investors actually know their options and exposures in the event they witness serious misconduct. And figuring them out after the fact is like waiting for a devastating market crash to determine your investment beliefs. The crossroads of what everyone interviewed calls “one of the most important decisions of your life” is when you most want a cool head, sound logic, and a plan. Here’s a start.
  

Option A: Suck It Up and Play Along. 

You like the job and paychecks. Using some random service provider now and again is not a big deal. Everyone on the desk does it. It’s not like you even know why you’re sending a bit of business to Skilling, so how could you get in trouble? Plus, you’ll start looking for a new job eventually. 

You’re in good company—or at least, lots of company. Despite what organizations say after they get in trouble—an isolated incident, one bad apple, etc.—financial malpractice is a team sport. For every instigator, a gang of bystanders chooses to play along and execute the operation. The larger it gets, the more ‘normal’ such behavior becomes, until those involved no longer have to even justify it to themselves.

“Within the public and private sectors, some types of misconduct are so deeply ingrained in institutional or professional culture that they have legitimacy,” says attorney Tom Devine, who has worked with more than 6,000 whistleblowers as legal director of the Government Accountability Project (GAP). “That is despite the fact that the behavior may technically be indefensible. Employees are much less likely to challenge an ingrained way of life than the shenanigans of one or a few corrupt individuals.”

“Within the public and private sectors, some types of misconduct are so deeply ingrained in institutional or professional culture that they have legitimacy.”Take SAC Capital. When Manhattan US Attorney Preet Bharara finally busted the hedge fund empire, he described it as “riddled with criminal conduct” amid a culture that “fostered pervasive insider trading.” SAC didn’t get there by recruiting insider traders, according to the Department of Justice (DoJ). It created them. “Hiring practices heavily focused on recruiting employees with networks of public company insiders.”

Normal people end up doing bad things. The longer you spend in this category, the more you’re liable to forget you’re in it at all, and the riskier any of the other options become. In other words, check yourself before you wreck yourself. Failing that, head directly to Option D.
  


  

Option B: Quit. 

For the hypothetical case, quitting is simple, clean, and pretty safe. Even if you arrive here after a pit stop in Option A, the chances of being held culpable if regulators did eventually find out would be slim-to-none—provided you’re the one who told them. 

Low-level participants in financial misconduct who later come forward have a “remote” risk of liability after leaving the scene of the crime, says Jordan Thomas, a former US Securities and Exchange Commission (SEC) assistant director who worked on Enron, Fannie Mae, UBS, and Citigroup cases. Thomas led development of the SEC’s whistleblower program while also helping to write the relevant section of Dodd-Frank.

After 16 years as a public sector attorney—SEC, DoJ, US Navy—he left in 2011 for Labaton Sucharow, co-creator of the cited ethics survey. Thomas is to financial whistleblowing what Johnnie Cochran was to celebrity criminal defense: If you have the choice, he’s the guy you want on your side.  

Quit now, and you can still tell regulators down the road (See: Option E). Thomas meets with people at this juncture, and often gives them very un-lawyerly advice: You don’t want to pursue this. “People come to me with crazy big violations—huge cases—but blowing the whistle isn’t consistent with their goals. Or, say, three people on the planet truly know about it, and you’re the only one who doesn’t work there anymore. I know about securities frauds that are going on right now undetected, because the people I advised chose not to come forward.”