SAN DIEGO (CN) – The SEC allows the nation’s richest firms and financial institutions – and only the biggest and richest firms – to handpick the lawyers investigating them for corruption, a whistleblower claims in Federal Court.
Rodolfo Michelon claims that the SEC runs an exclusive “outsourcing program” for Wall Street, neutering incentives and protections for whistleblowers under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Michelon sued the SEC and FBI in his federal FOIA complaint.
In November 2010, Michelon sued his former employer Sempra Global, an energy company, in San Diego Superior Court, alleging wrongful firing, retaliation and fraud.
One section of his new complaint is headed: “How Sempra Energy got a Whistleblower Complaint of its FCPA Violations Outsourced to its Favorite Law Firms.”
Michelon claims that federal law “requires that Justice remain blindfolded at the SEC,” but that the agency operates under “a double set of laws: one for the wealthy and well-connected and another for everyone else.”
U.S. Attorney Laura Duffy this year closed an investigation of Sempra under the U.S. Foreign Corrupt Practices Act, which apparently was sparked by Michelson’s previous lawsuit. Michelson claimed that Sempra paid kickbacks to Mexican officials to win bids for energy projects in Baja California.
Sempra fired Michelson in March 2010. He claimed that while he was controller for Sempra Global in Mexico he was told to bribe government officials, according to the San Diego Union Tribune. Sempra denied it.
In his new complaint, Michelon claims the SEC allowed Sempra to hire the Jones Day law firm to lead the investigation against it.
A Washington Post article, cited in the complaint, reported that Sempra’s executive vice president and general counsel were once Jones Day partners.
In his FOIA complaint, Michelon states: “(S)enior officials in the SEC Division of Enforcement routinely outsource their investigations of whistleblower complaints of suspected violations of the securities acts by Fortune 500 companies, large financial institutions, and their senior executives to large and prestigious law firms retained by the subjects of those investigations.”
After the SEC receives a tip from a whistleblower, it summarizes the complaint and sends it off to the subject company, Michelon says. The firm is then permitted to “retain a large prestigious law firm,” with the SEC’s explicit or implicit approval.
“The approved law firms are routinely paid millions of dollars by their clients, the subjects of the whistleblower complaint, to investigate whether their clients violated federal securities laws,” the complaint states.
Michelson claims the enlisted firms are more accustomed to defending Wall Street firms than investigating them and have an obligation to “act as zealous advocates of their clients.”
“Given these ethical and financial incentives, the law firms and the attorneys who conduct the outsourced SEC investigations routinely issue reports and make presentations to SEC staff in which they purport to prove, find, and conclude their clients committed no violations of the securities acts,” the complaint states.
The SEC ignores those incentives and acts as though the firms’ findings are impartial, Michelon says.
“Plaintiff is informed and believes, and thereon alleges, that the SEC only makes its outsourcing program available to Fortune 500 companies, the nation’s largest financial institutions and their executives. The criteria employed by the SEC in selecting the privileged few who benefit from the SEC’s outsourcing program are unknown at this time, but, at a minimum, the service is only available to those who can afford to retain the most prestigious and expensive law firms to represent them. In this way the SEC has made a mockery of the Code of Federal Regulations which requires the SEC to be impartial in its administration and enforcement of the securities acts,” according to the complaint.
Michelon claims the protections for Wall Street are perpetuated by incestuous relations among senior members of the SEC, the Department of Justice and members of congressional committees, who “rotate in and out of Wall Street law firms, Fortune 500 companies, and large financial institutions.”
“This rotation to and from agencies that prosecute securities violations, congressional committees with oversight of said agencies, the financial industry, Fortune 500 companies, and the law firms that represent Fortune 500 companies and large financial institutions is commonly known as the ‘revolving door,'” the complaint states.
“Plaintiff is informed and believes, and thereon alleges, that the SEC’s outsourcing program has effectively nullified the whistleblower provisions in the Dodd-Frank Act. Plaintiff is informed and believes, and thereon alleges, that the SEC’s outsourcing program is a major reason the SEC has not made a single whistleblower award, or at least not disclosed such an award, since the whistleblower incentive provisions in the Dodd-Frank Act became operative on July 22, 2010.”
Michelon is represented by Gary Aguirre of San Diego.
Aguirre told Courthouse News: “This is simply one of several ways in which the SEC continues to give deference to Wall Street – the same folks who gave us the 2008 financial crisis.”
The SEC and FBI said they do not comment on pending litigation.