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House Republicans Propose Weakening SEC Whistleblower Reward Program

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InvestmentNews.com reported that Rep. Michael Grimm, R-N.Y., presented legislation that would require whistleblowers to first report fraud trough their employer’s internal compliance program before they would be eligible for a reward from the SEC under the Dodd-Frank Act. During a House Financial Services Subcommittee on Capital Markets hearing, the drafters related a concern that whistlblowers would universally avoid reporting fraud through employer compliance programs and instead report fraud directly to the Securities and Exchange Commission in order to collect reward.

House Republicans Propose Weakening SEC Whistleblower Reward Program

In my experience representing whistlblowers, they are primarily concerned about keeping their jobs and protecting their careers. The whistleblowers intimately familiar with their employer’s corporate culture and the scope of the fraud – not politicians divorced from the situation – are in the best position to judge whether using their employer’s compliance program has any hope of remedying the situation. Reporting internally at companies where the corruption is at its very core, such as Enron or Madoff Investment Securities, would at best slow down the SEC and at worst tip off the fraudsters and lead to evidence destruction.

When whistleblowers report their employer’s illegal activities, their entire career is jeopardized. Placing any amount of uncertainty on whether or not a whistleblower will be rewarded will most certainly chill whistleblower speech, the opposite result of what Congress intended when enacting the whistleblower provisions of the Dodd-Frank Act last year. Jason Zuckerman, a principal attorney at The Employment Law GroupĀ® law firm, said he hopes that the SEC will come out with strong whistleblower protections. “In order to put your job on the line, there has to be a real financial incentive,” Mr. Zuckerman said.

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