By David S. Hilzenrath
Washington Post Staff Writer
Friday, February 18, 2011; 8:21 PM
The Securities and Exchange Commission on Friday named a veteran of the corporate boardroom to head a new office responsible for enlisting whistleblowers in the fight against corporate fraud.
The appointee, Sean McKessy, said in a news release that whistleblowers "often provide invaluable information that can help uncover securities fraud." But his appointment set off alarm bells among whistleblower advocates, who said his resume inspired little confidence that he would lend a sympathetic ear.
McKessy has served as corporate secretary for AOL and Altria Group, parent of cigarette maker Philip Morris. Earlier in his career he worked for Caterpillar and, from 1997 to 2000, as a lawyer in the SEC's enforcement division.
The SEC highlighted his corporate background in announcing the appointment. McKessy has "developed and supervised internal compliance and reporting programs related to the federal securities laws, served as corporate compliance officer, and coordinated the reporting of potential violations to boards of directors," the agency said in a news release.
Whistleblower advocates said McKessy's background worried them that he would protect corporate interests.
"I am certain that Wall Street is breathing a sigh of relief today," said Stephen M. Kohn, a lawyer who represents whistleblowers and serves as executive director of the National Whistleblowers Center.
"He's going to have to overcome a lot of skepticism in the whistleblower community," said lawyer Dean Zerbe, another whistleblower advocate.
Congress mandated that the SEC set up the whistleblower office as part of the law enacted last year to overhaul financial regulations and prevent future economic crises. To expose financial fraud before it can do widespread damage, the law provides powerful incentives: whistleblowers are entitled to rewards totaling 10 to 30 percent of the money their tips help the SEC recover.
The potential bounties have sent a shudder through the business community, and corporate representatives have urged the SEC to be cautious in designing the program.
Corporate representatives have said they fear that employees will run to the SEC instead of reporting wrongdoing to their own companies, and that the rewards will unleash a flood of frivolous tips.
Whistleblower advocates say employees have little reason to trust internal channels. They have criticized the first draft of SEC rules for the program as potentially frustrating for whistleblowers.
The issue has become one of the most contentious the SEC must face as it implements the new financial regulation law.
Writing on behalf of corporate clients, one law firm urged the agency to prohibit lawyers from taking on whistleblower clients in return for a percentage of any reward. Banning such contingency fees would raise the bar for whistleblowers by requiring them to pay legal fees up front.
"The tremendous monetary incentive for whistleblowers to report issues directly to the SEC . . . threatens the ability of well-meaning, compliant public companies to identify and, where possible, address compliance concerns internally," James Moore, general counsel of Huntsman Corp., wrote in a December letter to the SEC.
The U.S. Chamber of Commerce said in a statement Friday that it was "encouraged" that the new director of the whistleblower office "has a solid understanding of corporate compliance programs."
The SEC would not make McKessy available for an interview.
"The Enforcement Division and whistleblowers alike will greatly benefit from Sean's first-hand experience in bringing enforcement cases, handling whistleblower complaints and understanding the workings of internal corporate compliance programs," SEC enforcement director Robert Khuzami said in the news release.