Edward Siedle’s whistleblowing career began in 1988, with the resignation of his former boss. Siedle, an in-house lawyer for the money manager Putnam Investments and a former Securities and Exchange Commission attorney, was temporarily tasked with overseeing the firm’s compliance department. Soon after taking on the new role, he discovered that some senior fund managers had asked their colleagues to delay trades for clients until they could complete their own—an illegal practice known as front running. The details of his departure from Putnam are murky, but by his own account, Siedle blew the whistle internally at Putnam, disclosed the alleged misconduct to the SEC, and left to start his own asset management firm. His allegations remained under wraps until a decade later, when a dispute with Putnam over his retirement compensation sparked a contentious legal battle.
At the time, Siedle didn’t stand to make any money by going to the SEC. But in 2010, Congress passed the Dodd-Frank Act, which created monetary incentives for whistleblowers that report financial crimes to the SEC. Now, 30 years after his first attempt at whistleblowing, Siedle has hit a home run. Last week, the SEC awarded him $37 million—the second-largest award the agency has given to a single individual to date—for helping it secure a $307 million settlement with JPMorgan over the bank’s failure to disclose conflicts of interest to its wealth management clients (the company said the undisclosed conflicts were “unintentional”). That’s on top of an additional $30 million he received last year from the Commodity Futures Trading Commission, which was also party to JPMorgan’s 2015 settlement. Another whistleblower, who is anonymous, received a smaller, $13 million award from the SEC, according to the agency’s recent announcement.
As the adage goes, “If at first you don’t succeed, try, try again.” Or, in Siedle’s case, try again and again and again. Since the SEC’s office of the whistleblower opened its doors, he has submitted between six and dozen tips, Siedle estimates – before that, “hundreds.”
“I’ve been doing this longer than anyone in the world,” Siedle told Fast Company in a recent interview.
The SEC’s latest blockbuster award comes at a pivotal moment for the whistleblower program. Last year, the agency proposed a set of amendments to the rules governing how it administers awards. Several of the changes are designed to address one of the biggest complaints surrounding the program: the amount of time it takes the SEC to process whistleblower claims and disperse awards. These include a proposal to ban individuals who submit false information, or who repeatedly make frivolous claims, and a proposal to expedite its review process for claims that are likely to be denied.
The SEC’s efforts to streamline its award determination process are widely supported by whistleblower advocates, but other changes proposed by the agency have been received less warmly. Among the most controversial are a discretionary cap on the largest awards and a clarification about what constitutes “independent analysis” from whistleblowers like Siedle, who has never worked at JPMorgan. If the SEC’s new whistleblower rules come into effect, they could have the biggest impact on exactly the type of award that the agency gave to Siedle last week.
Something of a truthsayer
It took more than a decade, but the allegations Siedle says he leveled against Putnam in 1988 were eventually the subject of investigations that resulted in the fund paying $110 million to the SEC and the state of Massachusetts. By the early 2000s, the mutual fund industry had come under intense regulatory scrutiny, thanks in part to an aggressive series of investigations by then New York Attorney General Eliot Spitzer.
Around the time of his legal dispute with Putnam, Siedle returned to law full-time and began offering his services investigating retirement plan abuse. Since then, he’s investigated public pensions in Rhode Island and North Carolina, and in the cities of Nashville, Chattanooga and Jacksonville, Florida, as well as pensions at companies such as Walmart and Boeing. In 2011, he was part of a legal team that successfully brought a $13.5 million class action lawsuit against Walmart for failing to monitor excessive fee charges on its employee 401(k) plan.
Siedle likes to explain what he does by telling the story of his father, a sociologist who, he says, worked for the CIA collecting intelligence on the Ugandan dictator Idi Amin Dada. A professor at Makerere University in Kampala, Robert Siedle’s speciality was gerontology, the study of ageing. He traveled throughout the country to conduct research in Ugandan villages, meanwhile gathering intelligence on Amin’s death squads. In 1971, when Siedle was 17, Robert was captured by soldiers, tortured and killed.
A year later, Siedle filed a case against Amin in international court. The experience is what led him to law school, he says. He sees a parallel between his father’s work and his investigations into retirement plan abuse.
Siedle’s pension expertise and his persistent criticism of money managers has made him into something of a truthsayer in the industry, which he regularly rails against in a long-running blog on Forbes‘ website. Although Siedle declined to discuss what information he provided the SEC over the course of the JPMorgan investigation, a pair of blog posts from 2012 took aim at several hedge funds on offer by the bank. In another post in 2013, Siedle said he had reviewed the JPMorgan hedge funds for two charitable clients.
The Forbes blog has clearly landed Siedle work on occasion. After a series of posts attacking former Rhode Island treasurer Gina Raimondo’s management of the state’s $7 billion public pension, Rhode Island’s largest public employees union hired him for $20,000 to write a report, which was released months later. The report expanded on Siedle’s criticism of Raimondo – now the governor – focusing on her decision to invest $1 billion into hedge funds and calling on the SEC to investigate.
The union’s president, J. Michael Downey, a fierce critic of Raimondo’s management of the pension, told Fast Company that it was the “best money our union has ever spent.” Raimondo, however, saw Siedle’s role differently. She accused him of posing as a journalist while pitching the local union for business. After his report was released, she brushed it off as a “political attack paid for by opponents of pension reform.” Despite the criticism she faced, as other states have struggled with pension shortfalls, Raimondo’s reform plan has been held up by some as a model.
Chris Tobe, a former investment adviser who is running for state auditor in Kentucky, has known Siedle for over twenty years. Like Siedle, Tobe has made a career out of investigating pension fraud. He says there are very few people who do what Siedle does.
“Most of the time these public pensions want to hire someone to do an investigation, they want someone who will go in and do a whitewash,” Tobe says. “If they don’t want to find excessive fees, they don’t want to hire us.”
Every fraud is obvious… in the rear-view mirror
Siedle’s prescience in the asset management space in some ways mirrors that of Harry Markopolos, the financial analyst who repeatedly tried to push the SEC to investigate Bernie Madoff’s giant ponzi scheme. The scandal became a driving force behind the creation of the agency’s whistleblower program in 2010. Ironically, the SEC’s recent proposal to clarify what constitutes independent analysis could hurt the chances of whistleblowers like Markopolos and Siedle.
In order to qualify as independent analysis, the SEC says a whistleblower must provide insight beyond what would be “reasonably apparent” to the agency from publicly available information. To assess whether this requirement is met, the agency wants to review whistleblower submissions after a settlement has been reached to determine whether the violations could have been inferred from public sources.
This type of backwards-facing review worries whistleblower advocates, including Markopolos. In comments submitted to the SEC last year, Markopolos told the agency he would reconsider submitting tips if the proposal was adopted. “Every securities fraud is obvious when looking in the rear-view mirror,” he wrote.
The SEC is also considering a discretionary cap on awards that stem from cases where penalties surpass $100 million. The Dodd-Frank Act mandates that payouts fall between 10% and 30% of the financial penalties imposed as a result of a whistleblower’s tip, but the specifics are up to the SEC. Under its current rules, the agency can’t lower an award simply because it’s large.
The SEC has said that the proposed cap will allow it to make “common-sense adjustments” to awards like those given in the JP Morgan case, while still achieving the program’s goals. When awards becoming “exceedingly” large, there may be a “diminishing marginal benefit,” attorneys for the agency wrote last year.
The agency noted that an individual who receives $30 million – the amount under which the SEC can’t adjust the award any further, per their proposal – would still find themselves in the top 99.5 to 99.9 percentile of the U.S. population by net worth, even after taxes. “[I]f modestly invested, [a $30 million award] should produce a reasonable lifetime income stream for most potential whistleblowers,” it argued.
“More money motivates people more”
The proposed cap has been met with opposition from a wide range of sources, including the agency’s Democratic commissioners, Republican senator Chuck Grassley, and several whistleblower advocacy groups. Among the most vocal critics are whistleblower lawyers, who work closely with prospective tipsters to submit confidential information and evidence to the SEC and later file award claims on their behalf, in exchange for a substantial cut of any future payout.
The source of the proposal has puzzled many of those who are fighting against it. By most accounts, the SEC’s whistleblower program has fulfilled the vision of lawmakers who fashioned it following the 2008 financial crisis. So why has the SEC decided to change it now? It doesn’t appear that the proposal was driven by outside groups. While one of Wall Street’s main lobbyists, the Securities Industry and Financial Markets Association, has voiced support for the discretionary cap, another champion of corporate America, the Chamber of Commerce, the business lobbying group, has come out against it.
Inside the SEC, the ballooning size of whistleblower awards – and the prospect that a future settlement could lead to an extraordinarily large payout – has been a matter of discussion at the SEC for some time, according to two former SEC attorneys. Large awards given out by the agency over the years have at times sparked heated debates internally about how much money is too much, they said. In some sense, the philosophical question being posed by the SEC’s proposal–how much is too much?–was inevitable.
Nevertheless, critics argue that the cap inject politics and uncertainty into the award process, which can stretch on for years and subject whistleblowers to intense stigma and financial difficulties. Without the lure of a mega-award, the type of highly paid, senior executives who can lead the SEC to the most important cases and provide the best evidence, won’t step forward, the argument goes.
“Oftentimes the best information comes from people who have a fairly complete understanding at a high level of what’s going on,” Erika Kelton, a whistleblower lawyer, told Fast Company. “And oftentimes those people are extremely well-compensated. Given the risks of being a whistleblower, which can wreck your career, if you’re serious about getting information that can have a profound impact on securities law enforcement, you have to recognize that people could sacrifice a lifetime of earnings.”
There are countless examples of whistleblowers who have faced retaliation from their employer for blowing the whistle. Siedle is hardly one of them. He’s the first to admit that blowing the whistle hasn’t hurt his career, and he’s up front about the financial incentives. Over the years, he says he’s submitted tips sometimes for the potential award, and sometimes not. He also works as a whistleblower lawyer, representing clients inside companies who want to submit a tip to the SEC.
Siedle’s main complaint about the agency’s whistleblower program is the length of time it has taken to receive an award. The SEC didn’t reach a final decision on his claim until almost three and a half years after its settlement with JP Morgan, and around six years after Siedle says he first submitted his tip to the SEC.
“It is just incredibly, inexplicably long,” he says. “When I got the preliminary determination, [the award] was the largest in history; by the time I got the damn thing [the final decision] it’s the second or third largest.”
In fact, it may still be months before Siedle obtains his money, since claimants who are denied a payout have the right to appeal the agency’s decision to federal court. The 30-day deadline to file an appeal began when the SEC issued its final decision on March 26.
As for the cap, in Siedle’s view it doesn’t make sense. “More money motivates people more,” he says.