Nayeem in Fort Worth

Nayeem is a graduate student in the JD/MBA program in Dedman School of Law and Cox School of Business. He was awarded a Maguire and Irby Family Foundation Public Service Internship for summer 2013 from the Cary M. Maguire Center for Ethics and Public Responsibility at SMU. He is working as an enforcement attorney at the U.S. Securities and Exchange Commission in Fort Worth.

Tell the truth: A lesson to revisit

This sentence is false.

If “this sentence is false” is true, then the sentence is false, which is a contradiction.  Conversely, if “this sentence is false” is false, then the sentence is true, which is also a contradiction. The liar’s paradox has been around since the ancient Greeks; unfortunately, so have liars.

It wouldn’t be incorrect to say that lying is the root cause of the “Great Recession” that has cast such a dark shadow over the U.S. economy for the past several years.  Bernie Madoff lied.  So did Allen Stanford, Peter Lombardi, Nicholas Cosmo, James Nicholson, Joanne Schneider, Brian Smart, and many, many others.  Liars.  All of the aforementioned individuals were entrusted by normal people just like you and me, and these liars violated that trust for their own personal gain.

As a Maguire Center Public Service Intern, I kept asking myself the same question while I worked at the Securities and Exchange Commission:  Why don’t these defendants learn?  When confronted by government investigators, either tell the truth or don’t talk.  Seems simple enough, right?  WRONG.  I personally encountered no less than one liar each week I was at the SEC.  The concept of telling the truth seems to elude these ostensibly savvy financial managers and bankers.

Case in point – just recently, the SEC charged the owner of a New York-based investment advisory firm with defrauding investors while grossly exaggerating the amount of assets under his management, and announced that the defendant has pled guilty to criminal charges, which included charges that he lied to investigators.  This fraudster perpetuated a series of fraudulent schemes targeting individual investors and small businesses, and touted his firm’s assets under management to be as high as $3 billion.  He lied to investors, business owners, companies, mothers, fathers, siblings, grandparents, and more.  The fraudster paid zero returns to investors and illegally used their money to fund such personal expenses as his children’s private school tuition, air travel and hotels, department store purchases, and several thousand dollars in dental bills.

Dental bills?  Liar, Liar, Pants-on-Fire.

Ask any of these convicted fraudsters and they’ll tell you, once you start lying, it only gets worse.  I encountered two separate guilty pleas to making false statements to SEC examiners.  Andrew M. Calamari, Director of the SEC’s New York Regional Office, said it best, stating, “Our examination and enforcement staff aggressively pursue investment advisers who flout the registration provisions of the securities laws for their personal gain, especially those who attempt to cover up their misdeeds by flat-out lying to our examiners.”

This latest fraudster now faces allegations of violating Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5, Section 207 of the Investment Advisers Act for filing a false Form ADV, and aiding and abetting his company’s improper registration in violation of Section 203A of the Advisers Act.  That laundry list of violations, and all because he couldn’t stop lying.  Telling the truth is a fundamental character trait that we must demand from those who are entrusted with the well-being of others.  By deciding that telling the truth is always the best way to deal with situations, we can all avoid misunderstandings, complications, and possible criminal consequences.

One of the most enriching aspects of working at the SEC was interacting with whistleblowers — people who go against the grain and tell the truth, even if it exposes them to ridicule and possible retaliation.  I quickly adhered to the school of thought at the SEC that a profound sense of morality is the only safeguard of democracy and the best defense of our social and economic rights.

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Fight financial fraud: The SEC is here to help

The Dodd-Frank Wall Street Reform and Consumer Protection Act – or as I like to call it, The Game Changer.  Unless you’ve been hiding your money under your mattress for the past few years, you’ve heard of the Dodd-Frank Act.  While the name has a certain lackluster feel to it, the substance of the Act is something else completely.  The Dodd-Frank Act provides incentives, protections, and procedures for people who report information about securities-related fraud to the Securities and Exchange Commission.

That’s right… incentives, protections, and procedures for people who report fraud to the SEC.

If it reads cryptic and leaves you with a sense of “huh,” then you’re not alone.  The Act allows the SEC to actively recruit and protect Whistleblowers.  Whistleblowers are people with knowledge of corporate financial wrongdoing — and the ethical conviction and moral fortitude to bring it to light.  They provide an important public service and may even help prevent the next Enron, Bernie Madoff, or other major economic crisis.  We have learned as a nation how fraudulent financial practices can destroy hard-earned nest eggs, cheat retirees and investors, and even cause economic meltdowns like the one that triggered the Great Recession.

That is why the Act is referred to on a daily basis at the SEC.  You see it in emails, relied upon for authority in pleadings, and being spoken of at the proverbial water cooler.  Federal law recognizes that whistleblowers who expose financial misconduct provide a valuable public service – and it is for this reason that the Act provides whistleblowers with financial incentives and protection from retaliation by culpable employers.

Financial incentives that can add up to a pretty penny!

The SEC’s Investor Protection Fund, from which whistleblower rewards are paid, has been funded with $452 million.  Created in the spirit of the highly successful False Claims Act, Section 922 of Dodd-Frank entitles whistleblowers who provide the SEC with information leading to a successful enforcement action to awards of 10 to 30 percent of sanctions of $1 million or more.  So, doing the honest and ethical thing can actually prove to be quite beneficial for your future.

The Act also prohibits employers from retaliating against employee-whistleblowers and provides whistleblowers with legal recourse if their employers fire them, demote them, or otherwise make their work life difficult. They are protected from retaliation even if the employer hasn’t committed any securities law violations and/or the SEC never files a case against the employer.

Working at the SEC, I have gained a discrete look at how important Whistleblowers are to the US economy.  I’ve encountered Whistleblowers from around the globe who provide credible intel on what could be the next Madoff.  So, I felt the need to use this blog post to raise awareness.

Examples of financial wrongdoing include the following:

  • Insider trading
  • Market manipulation
  • Ponzi schemes
  • Financial reporting that violates the standards established by the Financial Accounting Standards Board
  • Violations of the Foreign Corrupt Practices Act
  • Financial scams targeting investors

Expose financial fraud. Protect the public interest. The Securities and Exchange Commission can help.

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An incredible opportunity for public service

The Securities and Exchange Commission in Fort Worth

The Securities and Exchange Commission in Fort Worth

I could tell you exactly what I do as an enforcement attorney for the U.S. Securities and Exchange Commission (SEC), but then I’d have to kill you.  Just kidding!  Although I do get to flash a government badge like 24’s Agent Jack Bauer, I try to keep it a little more tame and friendly at the SEC’s offices in Fort Worth, Texas.

It’s really an honor for me to have this incredible opportunity this summer to work for such a prestigious organization charged with protecting the public from possible violations of the federal securities laws.

I am truly amazed by the long, accomplished history of this government entity.  This Commission was created by the Securities Exchange Act of 1934 in response to the Great Depression and the Wall Street Crash of 1929.  Congress allows the SEC to levy civil enforcement actions against companies and individuals alleged to have committed fraud, provided false information, engaged in insider trading, or other violations of securities laws.  This is a collaborative task – we also work closely with various criminal law enforcement agencies to ensure that justice is served.

So after having me reveal to you that I am privy to insider trading cases, I know what you’re wondering.  Have I gotten a chance yet to meet the ravishing Martha Stewart?  Unfortunately, no!  But for whenever I do, I already have a couple of questions ready for her…1) How do I get this berry blue gum out of the seat of my khaki pants?…and 2) Do sour cherries REALLY make the best pie?  Seriously, Martha, sour?  Hmmm, perhaps it’ll be a complete culinary coup if I use turbinado sugar instead of that artificial, un-splendid Splenda nonsense…Martha, you are so clever!

Sorry y’all, thinking about Martha gets me off topic sometimes!  But seriously, I wish I could tell you more about some of these cases that I’m working on.  Unfortunately, my work is confidential so I can only give you some teasers.  There are such exciting cases coming through our doors on a daily basis, and I feel like I have a leg up on the targets since I have both business and legal operational experience.  I am especially fascinated with the cases involving Ponzi schemes and attempts to manipulate the markets with false or misleading information.

Before I came to work at the SEC, I had not thought of all the intricacies involved in navigating through this complex mandate of protecting the public while ensuring that markets are still as free as possible from overregulation.  Fortunately, I have the privilege of working with some extraordinarily talented people at the SEC who can guide me in this tremendous process.  I am in awe of their dedication to public service and feel inspired to learn more from them this summer.

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