Whistleblowers Are Not Pretty

By Francine • Feb 3rd, 2011 • Category: Food for Thought, Fraud, Internal Audit, Madoff, SEC

This article was originally published at GoingConcern.com on March 3, 2010.

Most don’t wear stilettos, although Cynthia Cooper is fairly attractive for a blond. Harry Markopolos, the Madoff “hero” whose new book is out is being called a whistleblower. I do not see him really warming up to that label or really warming up at all. He did admit that, early on, he was partially motivated in his quest to get the SEC to listen to his theories about Madoff’s fraud by the potential for whistleblower rewards.

From The Boston Globe in January 2009: Markopolos allows that at times he was motivated partly by the opportunity to receive a bounty that the government pays to whistleblowers in successful prosecutions, if the fraud falls within certain categories – the front running issue, for example… Over time, Markopolos concluded that he wasn’t likely to get a whistleblower payment, but he continued nonetheless, spurred on by the pure intellectual challenge of cracking a Wall Street legend…

Now Markopolos works to seek out other whistleblowers and shares in the bounty if they successfully file claims.

From a recent Fortune interview:

You were a whistleblower and you work with them now. What is the profile of the whistleblower’s personality? If you don’t have a strong belief system, you’re not going to be a whistleblower. You have to be crazy-brave. The risks are all weighted to the downside.

Crazy-brave? Yes. You cannot have self-doubt. You just have to go forward and say I believe in this country. I believe in these core values. I know if I get outed and get caught, I’ve committed economic suicide for myself and my family. I’m going to be on the industry blacklist.

Markopolos reminds me of many internal auditors I have known over the years. Many are introverted, not comfortable with the spotlight, anal-retentive but with a pit-bull, black-and-white, judgmental sense of right and wrong. It’s what it takes to do the job.

One of the biggest challenges for the internal audit profession after Sarbanes-Oxley was passed was to live up to the enormous expectations. Internal audit functions were mandated. Controls were front and center. I expected Internal Audit to gain more prominence as Chief Audit Executives began reporting directly to the Audit Committee and started making their own Board presentations instead of hiding behind the CFO.

Unfortunately, as my friend Chuck Eldridge from Korn Ferry told me back in 2003, very few internal auditors at the time were prepared to be “outside guys” instead of inside guys. In fact, it should be suspect if the internal auditor is too cozy with senior executives. We’ve seen internal audit come back again full circle to having to justify their existence via consulting and cost-savings initiatives.

It is hard out there for the internal auditors, external auditors, and accounting professionals, who want to expose fraud and illegalities and still live to work another day. Markopolos said he feared for his life. I know I’ve been more wary about my own safety since November. Cynthia Cooper of WorldCom fame received death threats.

“For me, this has been the most difficult thing I have gone through in my lifetime…There were times when I was scared to death,” Cooper told the audience, adding that she had to dig down to find her courage and push forward.

Few are prepared for the consequences or realize fully how bad they can be. Ideally you are either independently wealthy or so poor that you have nothing to lose. Sticks and stones can’t hurt you.

I know one real-life whistleblower personally. He’s actually a former Chief Audit Executive who is more of an outside guy than usual. He was always active in professional associations like the IIA, was comfortable presenting to outside counsel and the Board of Directors and has the chops to deal with tough issues. When asked to look the other way in a job that was supposed to be a repair and renewal assignment rather than all CYA, he balked. He’s currently working as the CFO of a startup while pursuing his claims.

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7 Responses »

  1. Hi Francine,

    Another great post! I couldn’t agree more about the tough job of internal auditors. The best internal audit job I ever had was when I worked for a massive holding company and audited their various acquisitions–at least most of the time they wanted to hear what I had to say, and wanted their control issues fixed.

    The negative whistleblower connotations were why the heroine of my novel, Shell Games, became a financial-super-sleuth-for-hire. That way she didn’t have to fight to get people to pay attention to frauds going on in corporations. Her clients hired her when they wanted the fraud found; not ignored. (Shell Games is now available on Amazon.com.)

    Please keep up the great writing, Francine. I always enjoy reading your posts and learn something every time.

    Ciao for Now,

    Sara McIntosh

  2. [...] should be a great conference, with Harry Markopolos providing the opening keynote address and the Chairman of the Audit Committee of the CME Group, [...]

  3. [...] here.  The Audit Committee asks EY to support Lehman’s internal auditor in investigating a “whistleblower’s” allegations of balance sheet improprieties.  The auditors interview the “whistleblower” [...]

  4. Francine, I have a blog about the ethics of whistleblowing at (http://bit.ly/gL0CZ9). There is a danger that recently passed and existing legislation might lead some people to blow the whistle in order to gain a financial reward. The Federal False Claims Act has such a provision. The whistleblower can receive as much as 20 to 25 percent of the judgment. The Dodd-Frank Financial Reform Act recently passed by Congress also promotes whistleblowing as does Sarbanes-Oxley. From an ethical perspective, if the accountant/auditor who blows the whistle and reports financial wrongdoing to an outside authority such as the SEC (external whistleblowing), he or she must FIRST go through the corporate chain of command all the way up to the board of directors if necessary (internal whistleblowing) to push for change. This is required by Interpretation 102-4 of the AICPA Code of Professional Conduct and ethics standards of the Institute of Management Accountants. Circumventing this process violates the profession’s ethics rules and confidentiality requirements under rule 301. Cynthia Cooper followed both the letter of the law and its spirit in blowing the whistle on the WorldCom fraud. That’s why she is a true whistleblower in the best sense of the word and was named one of Time Magazine’s persons of the year in 2002

  5. Speaking of whistleblowers, I listened to the archive of the webcast from the NYSSCPA breakfast. I was struck by the contrast between Sherron Watkins talking about all the obstacles routinely placed in front of a potential whistleblower and the restrictions placed on anyone attempting to receive compensation through the Dodd-Frank bill and what the PCAOB and former SEC commissioner had to say. Seems pretty unlikely that the bill will actually result in additional cases being successfully brought to justice. Today, we find out that congress is stonewalling additional budget for the SEC. Given the restrictions on awards and the lack of additional SEC staff to handle the complaints, my guess is that the whistleblowers will again be hung out to dry.

  6. [...] provisions of the Dodd-Frank financial services regulatory reform bill.  This was a special audience, in my opinion, because it consisted of CPAs and those who support and work with [...]

  7. [...] whistleblower provisions of the Dodd-Frank financial services regulatory reform bill.  This was a special audience, in my opinion, because it consisted of CPAs and those who support and work with [...]

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