Midnight is the deadline to weigh in on the Securities and Exchange Commission’s plan to offer whistleblowers a bounty of up to 30 percent of settlements over $1 million and protection for alerting the government to corporate malfeasance.
More than 1,000 comments have already been submitted to the agency, mostly by individuals using two types of form letters that support whistleblower protections as a way to help prevent another U.S. financial meltdown.
However, McDonald’s Corp., Delta Air Lines, General Mills Inc., UnitedHealth Group Inc., Intel Corp., J.C. Penney Co. and other big companies worry that the SEC proposal would amount to a “gold mine” for employees. In a letter to the SEC, those companies and more than 200 others represented by the Association of Corporate Counsel say the SEC’s proposed bounty would wrongly encourage employees to skip reporting suspected misconduct to internal corporate panels and go straight to the SEC.
“We believe that the Commission’s proposals will have the impact of thwarting internal compliance and reporting programs in a manner inconsistent with the intent of the Dodd Frank legislation that authorized them,” the letter said. They want the SEC to instead require an employee to first use existing internal compliance mechanisms and to give the company “reasonable time” to resolve the suspected wrongdoing before the whistleblower alerts the SEC.
Other corporate interests urged the SEC to limit the fees attorneys representing whistleblowers would be allowed to earn in successful cases.
A 19-page letter jointly sent by the U.S. Chamber of Commerce, Verizon, Ryder Systems, Inc. and others asked the SEC to require employees to use company-internal compliance “hotlines” and give firms a shot at policing themselves. “The Proposed Rules should provide that the SEC will inform any company that is the subject of a whistleblower report and furnish such details concerning the report so as to provide the company an opportunity to investigate,” they told the agency.
Whistleblower advocates, meanwhile, criticized existing corporate hotlines as far from reliable in curtailing wrongdoing.
Stuart Meissner, an attorney who represents whistleblowers and a former securities regulator, told the SEC about a case he handled involving a major investment bank where “it was learned that the investment bank did not even have a designated person for the employee to call for their whistleblower hotline.” In addition,” he wrote, if the suspected corporate misconduct involves management, it may “involve officers who are well above the hotline designee in the corporate structure. Who in their right mind would report wrongdoing to that hotline?”
One whistleblower, formerly with a big Wall Street bank, also recommended that the SEC simplify its new rules so that “the least educated” employees could understand them without a lawyer. Matthew Lee was vice president for financial control at Lehman Brothers until he raised concerns about its accounting practices in 2008. Lee’s letter recommended publishing the rules online with “multi-lingual written, audio and video instructions and explanations” that would help employees working overseas for big U.S. companies.
The new regulations are required by the Dodd-Frank Act, the financial reform bill Congress passed last summer. However, the SEC has had a whistleblower bounty program for 20 years, but it is woefully under advertised, says Michael Smallberg, an investigator with the non-profit Project on Government Oversight. The current SEC program has only paid out five times, totaling $160,000, he said.
“The most important priority is letting whistleblowers make their own choice,” Smallberg says. “If an employee sees that their internal compliance program is a sham, it should be as easy as possible for them to come to the SEC.”