Why Sean McKessy to lead SEC Whistleblower Office?

by Kurt Schulzke

Last Friday, the SEC announced that Sean McKessy has been appointed head of the new SEC whistleblower office.   McKessy comes to the SEC from Caterpillar, Inc., where he worked as securities counsel.  He has also served as corporate secretary for Altria Group, Inc. and AOL Inc.  At all three companies, McKessy was responsible in part for internal SEC compliance and reporting programs and, in the SEC’s words, “coordinated the reporting of potential violations to boards of directors.”

McKessy is not a newcomer to the SEC.  From 1997-2000, he did a stint as a Senior Counsel in the SEC’s Division of Enforcement.  McKessy’s SEC and corporate securities experience will surely add valuable perspective to his new whistleblower position.  However, his experiential emphasis on “reporting to boards of directors,” ties to the corporate management set, and apparent complete lack of expertise in financial reporting, financial analysis or fraud-busting (Notre Dame B.A. in Liberal Studies and French; no CPA, CFE, or CFA) call into question his ability and inclination to play the enforcement role envisioned by Congress when it passed the Dodd-Frank Act.

One thing’s for sure: the McKessy choice flatly ignores Harry Markopolos’ post-Madoff prescription for SEC reform.  Barely two years ago, on February 4, 2009, Markopolos told the House Committee on Financial Services (emphasis added):

One thing the incoming SEC Chair should do right away is order a skills inventory of the current SEC staff to measure the exact skills shortfalls with which she is now faced. My bet is that Ms. Shapiro will find that she has too many attorneys and too few professionals with any sort of relevant financial background.

[Upgrading the SEC’s] staff, increasing its resources, and wholly revamping its compensation model is in order. In order to attract competent staff, a test of financial industry knowledge equivalent to the Chartered Financial Analysts Level I exam should be administered to each prospective employee to ensure that new employees have a thorough understanding of both sides of a balance sheet, an income statement, the capital markets, the instruments that are traded and the formulas incorporated within these instruments.

It is highly unlikely that McKessy — who now guides the very SEC office Congress created in response to the Madoff debacle — could ever pass the financial industry proficiency test proposed by Markopolos.  His selection for this position adds to doubts about the SEC’s (and Mary Shapiro’s) regulatory seriousness already at the forefront thanks to proposed whistleblower regulations tilted in favor of corporate wrongdoers.

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