Whistle Blowers Redux

Many of you remember Sherron Watkins, who shall forever be known as the Whistle Blower of Enron. She was named Person of the Week by Time Magazine back in early 2002. 

But Sherron was no fly-by-night. I saw her speak, and she’s smart, thoughtful, and clearly of strong character. A not-uncommon set of characteristics for whistle-blowers, as it turns out. Read her empathetic comments about another whistle blower, Harry Markopolos, of Madoff fame.

But there’s another whistle blower in town, and he deserves a look-see as well. In this case, his name is Ilya Eric Kolchinsky, and the company he’s blowing the whistle on is his former employer, Moody’s Investors Service

When Kolchinsky used to work for Moody’s, he criticized some of their practices. Moody’s resisted to some extent, and to some extent changed practices based on his criticism. Or so it seems. You can read the NYTimes article Kolchinsky and Moody’s.

What’s unusual here is that Kolchinsky is filing suit against Moody’s not to ‘out’ Moody’s original actions, but to say that Moody’s effectively blacklisted him after the fact. You can look up his LinkedIn page and see that he had quite a good track record before his stint at Moody’s, but has been doing consulting work well off Wall Street since then.

You can read the text of Kolchinksy’s lawsuit yourself. Make up your own mind; don’t take my opinion of its validity, judge for yourself.  

Here’s why you should care.

The Perils of Whistle Blowing

In my humble and non-legal opinion, he’s got a case. And if he does, here’s what follows:

First, it sucks to be a whistle-blower. And if you don’t believe Kolchinsky, go back and read Watkins and Markopolis. The Enrons, Madoffs and Moodys of the world don’t take kindly to criticism.

Second, if they do this to whistle blowers who tell the truth (proven in Watkins’ and Markopolis’ cases, yet to be proven in Kolchinksy’s), then how can you trust what they have to say? Can you say “opaque”?

Third, if it’s true at Moody’s that you get punished for telling the truth, then what does that tell you about the internal culture at Moody’s right now? How likely is it that others are going to be telling the truth—particularly about whatever it is they’re telling you is the truth? And how fixed are things that need fixing?

Kolchinsky and Moody’s will get their day in court, and of course it’s premature to speculate. But I will say this. The sounds of whistles being blown often, albeit not always, signify fire. And if you get to the point where a multi-year Managing Director is suing you—well, I wouldn’t lay big money that he’s cuckoo.

It’s more likely that Wall Street is very effective at chilling dissent. Here’s what the Times article went on to say:

Experts on whistle-blower suits expressed surprise that more such suits had not been filed.

“We didn’t see people coming from Wall Street, from the brokerages — it was stunning,” said David K. Colapinto, the legal director for the National Whistleblowers Center, a nonprofit organization in Washington that tracks whistle-blower cases. “What it signals is there just are not incentives for people to come forward, and there may have been big disincentives.”

 My guess is it took nerves and a lot of provocation for Mr. Kolchinsky to take the steps he did.