Bill Seeks to Restrict Corporate Whistleblowers in Financial Cases

House Republicans have launched a business-backed effort to block corporate whistleblowers from going directly to financial regulators with reports of wrongdoing.

At the center of the effort is a bill drafted to amend last year’s Dodd-Frank financial oversight law by requiring whistleblowers to report problems internally before going to the Securities and Exchange Commission. The bill would modify an SEC proposal, developed as part of the Dodd-Frank legislation, that would financially reward whistleblowers who provide detailed tips leading to enforcement actions that result in sanctions of over $1 million.

“The changes in Dodd-Frank open the floodgates to frivolous claims and costly penalties by allowing whistleblowers to go directly to the SEC,” the bill’s author, Rep. Michael Grimm R-N.Y., said in a news release. “Companies can’t effectively address a problem if they don’t know about it.”

Grimm’s position was supported by a representatives of the U.S. Chamber of Commerce and others who appeared before a House subcommittee on the issue last week, Reuters reports. But Geoffrey Rapp, a law professor at the University of Toledo, countered that the provisions in Dodd-Frank are vital and that whistleblowers typically still will report wrongdoing internally first because they see themselves as “loyal employees.”

The push for Grimm’s measure follows a recent legal setback for corporate whistleblowers. On May 3 a federal appeals court ruled that two auditors who helped expose violations in Boeing’s financial reporting practices were not entitled to whistleblower protections because they leaked the information to a Seattle Post-Intelligencer reporter.

The 9th Circuit Court of Appeals found that the federal law that applied in the case, the Sarbanes-Oxley Act, provided protection for whistleblowers who provide information to regulators, Congress or supervisors with authority to investigate misconduct, but that no such protection exists for disclosures to journalists.

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One comment to “Bill Seeks to Restrict Corporate Whistleblowers in Financial Cases”

  1. dobavobid

    Here’s the key sentence in this report:

    “Companies can’t effectively address a problem if they don’t know about it.”

    What is not obvious from Rep Grimm’s statement is what he is referring to by “problem”.

    The “problem” to be “effectively addressed” by companies is whistleblowers, not the misconduct they report. Companies have a conflict of interest with self-policing, and they have demonstrated this time and time again by how they retaliate against those who report misconduct and how they absolutely fail to action based on the disclosures their “loyal employees” make.

    The argument that a company doesn’t know about the misconduct is an inside joke.. What companies don’t know is how their misconduct becomes known, so they need whistleblowers to come to them first so they can improve the secrecy around their misdeeds and identify the source of leaks.

    What is not discussed here is the fact that whistleblowers usually follow the procedures of their company’s whistleblower policy and get frustrated with the lack of proper response, so they eventually come to feel the only option is to go to the press.

    This bill is just another step in the dismantling of protections against reporting the abuse of authority.

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