Government entities that use three-letter abbreviations, like the Internal Revenue Service (IRS), Department of Justice (DOJ) and Securities and Exchange Commission (SEC) increasingly embody all the truant characteristics of playground bullies.

First, there’s the DOJ probing journalists for national "security" reasons while ceasing investigations into various banks and CEOs for their role in effectively embezzling trillions of dollars from the rest of the world. To them, banks are too big to bully.

Then we have the latest (publicly revealed, anyway) IRS maneuver of battening down on non-profit groups that utilize the wrong words in their name (given the relatively small size of these groups, this is a glaring perspective problem, whether they represent the Tea Party or the communist party) instead of the hundreds of billions of dollars stashed in the offshore tax havens that President Obama campaigned he’d do something about.

And now, the SEC has fallen further into bully territory. Enter Kathleen Furey, a 10-year veteran SEC staff attorney. Furey officially blew an internal whistle on the director of the SEC's New York office after he refused to bring cases against investment management companies under the Investment Advisers Act of 1940 and Investment Company Act of 1940, 15 months before we were media-slammed by the poster-boy of the Ponzi school of investment management, Bernard Madoff.

Furey’s official complaint reminds us exactly why her case is in the public interest. A section in Title 17 of the US Code of Federal Regulations states, “Members of the Securities and Exchange Commission are entrusted” with “powers and duties of great social and economic significance to the American people” and is tasked by Congress with ensuring that the “private enterprise system serves the welfare of all citizens.” If only.

Furey’s Fight for the Financial Safety of Americans

Furey’s saga began when she took this notion of entrustment seriously. And vocally. Between January 2002 to December 2008, Furey alerted her boss, an assistant director at the NY Regional Office (NYRO) of the SEC about the possibility of shady dealings going on at some investment management companies. Her boss responded “We do not follow IM (investment management) cases.”

Not satisfied with that brush-off, in late 2007, Furey stepped up the ladder and informed her superiors about his stance. Rather than do anything about the substance of her concerns, Furey’s superiors told her to take the matter up to the Inspector General. When she did just that, she suffered the kind of reprisals designed to shut her up, like the ways a bully might gut-punch a small kid at recess time implicitly (or explicitly) threatening worse if the kid tells on him.

Furey was no slacker. She had received three years of straight promotions, raises and other monetary awards between September 2004 and 2006 for her exemplary work — before she blew the whistle. Right afterward, all that stopped.

And yet, her workload increased, reflective of a higher-grade level within the SEC grid, just not with the pay or title that work entailed. Her career trajectory halted in the tracks of the SEC’s desire to cover its own ass even as the Bernie Madoff case publicly erupted, as per her earlier warnings. When Furey asked why she was getting less than someone below her share of duties, given that her fears had proven prescient and accurate, her high performance scores from June to September 2010 were altered as later exhibits revealed — after she had signed them. Some of her higher marks were actually whited-out and replaced with lower ones.

So on January 30, 2012, Furey filed an official complaint with the US Office of Special Counsel (OSC). As with other federal employee whistleblower cases, the OSC doesn’t decide the case, but decides whether to bring it before the Merit System Protection Board. Furey also made requests to the SEC under FOIA and the Privacy Act to obtain her personnel records, supervisors’ communications about her, and other supportive information for her claims. Mostly, the SEC refused to produce those records.

Finally, in April 2013, Furey amended her complaint before the OSC to include more specificity of the SEC’s actions against her and under a broadened whistleblower law. On May 10, she filed a lawsuit under FOIA and the Privacy Act to obtain the records that the SEC had not released.

While Furey has gone through years of hoops to obtain transparency, the SEC has repeatedly denied her requests. But it’s not like the SEC has a problem with all whistleblowers, just its own.

According to Gary Aguirre, the former SEC lawyer representing Furey, who himself was fired by the SEC for his whistleblower actions and went through a similar skein of legal actions and SEC stonewalling, “The SEC actually loves whistleblowers (50% of its cases come from them) except for two classes: whistleblowers about the SEC (how dare they?) and whistleblowers that would like to get paid for the trouble (there has been one measly $50,000 payout in almost three years.)”

The SEC apparently subscribes to the do as I say, not as I do school of regulation.

“The only mystery,” says Aguirre, “is how do they get away with it?”

Bullies Behaving Badly

There are several ways to answer that question. You could go back in history to the SEC's first head, Joseph Kennedy, who was a market "operator" as Justice Louis Brandeis referred to the men that played finance with other people’s money. He was chosen by President Franklin D. Roosevelt to lead the newly created national watchdog body. FDR’s philosophy was that it took a thief to catch one (plus he was friends with Joe). Kennedy was consequently praised by his Wall Street compatriots (and the media) not because he went after them, but because he left them alone.

Or just consider the broader implications of the Furey case. Furey was simply trying to get the part of the SEC closest to the Wall Street Investment Management community to do its job to protect the American people, not to mention, all the individuals specifically screwed by covert Ponzi schemes like Madoff’s or by overt ones like the $14 trillion mortgage-related toxic asset pyramid schemes perpetuated by major banks under the tutelage of their chairmen and CEOs.

(To clarify: A covert Ponzi scheme would be the quiet use of investment management money from new fund participants to pay off old ones until there's not enough money coming in and the entire scheme collapses. An overt Ponzi scheme is the packaging of individual mortgage loans into increasingly convoluted, codependent and highly leveraged securities and the selling of them everywhere until the scheme combusts, gets subsidized by the Fed and corrodes the global economy.)

Furey’s case also shows that the SEC doesn’t like to examine itself, so why should we have confidence about its ability to examine other institutions? Not that it’s done a great job of that recently, for despite copious fines and settlements with major banks for their overt Ponzi scheme, none plead guilty to anything in those settlements.

Lastly, the incident displays a cowardly way to treat an employee or a whistleblower. The SEC is sitting on information that could support the claims of one of its own while citing various exemptions to avoid coughing up the information. Whatever its reasons, the SEC should step up to the plate if only to demonstrate what transparency means so we could believe it would enforce the same with corporations under its purview. Instead, it is fighting the whistleblower with an unfair advantage. Like a bully.