Today, consumers are paying the price for corporate America’s greed. Tomorrow, with some help from the SEC, whistleblowers will ensure that we do not make the same mistake twice.
On Wednesday I detailed for our readers what you need to know about the Dodd-Frank Wall Street Reform and Consumer Protection Act. An important question has arisen regarding the effectiveness of the whistleblower provisions within the Bill. Sources like Daily Finance are concerned that the Bill will generate little more than unsubstantiated claims from people grasping at straws in an attempt to take advantage of the enhanced benefits afforded to whistleblowers.
To supporters of the bill: these concerns cannot be dismissed out of hand. For example, employees with a poor performance record may abuse the whistleblower provision by wrapping themselves around the protections afforded legitimate whistleblowers by filing a frivolous claim. Once that claim is filed they have, at a minimum, made it more difficult to be fired based on their poor employment record. Similarly, people seeing dollar signs will inevitably submit unsupported or frivolous allegations of fraud in an attempt to collect on the enhanced whistleblower’s reward.
Despite this potential for mischief and abuse, my support for the whistleblower provisions remains unchecked:
First: I firmly believe that 99.9% of Americans are honest people who will not exploit this Bill.
Second: The SEC must step in and create rules for those bringing baseless claims under the whistleblower statute. This will weed out the dishonest whistleblowers but allow those with legitimate information to rightfully benefit from the Dodd-Frank Bill’s provisions.
Third, and most importantly: On balance, the whistleblower incentives will help solve a far bigger problem than they will create. Unchecked, gambling financial executives helped bring our economy to the brink of collapse. As former Treasury Secretary Hank Paulson re-tells in his recent memoir On the Brink, this titan of the financial world vomited under the stress of the crisis after addressing the press and Congress. And what better watchdogs to dissuade corporate corruption than the employees that work with the executives on a daily basis?
The Sarbanes Oxley Act of 2002 was the initial attempt at protecting and promoting whistleblowers; the toothless Act has yielded hundreds of fruitless complaints from whistleblowers. One after another they have been withdrawn or dismissed. Dodd-Frank enhances Sarbanes-Oxley in the following key ways:
- Extending whistleblower protection to employees of privately owned companies;
- Steepening fines for non-compliant companies;
- Offering contingent cash rewards; and
- Allowing complaints to be immediately filed in court.
In sum, the Bill rewards those who are diligent and more importantly, serves as a real deterrent to would-be-transgressors. This is the ultimate goal of any regulation—not to punish those who are out of line but to prevent future wrongdoing.
The categorical condemnation of the Bill’s whistleblower provisions is the equivalent of emptying out a bottle of wine to retrieve the broken cork. The Bill is not a flawless solution, but it will drastically diminish the unchecked corporate malfeasance that brought our economy to the brink of collapse; with a little regulation it can do this at a minimal public cost. Today, consumers are paying the price for corporate America’s greed. Tomorrow, with some help from the SEC, whistleblowers will ensure that we do not make the same mistake twice.
If you have suggestions for how the SEC should effectively regulate the whistleblower provisions, or if you oppose the regulation entirely, we are interested in carrying potential rules to the SEC as well as hearing other solutions.
Assisted by David Martin