I remember it like it was yesterday. Congress was formulating the Dodd-Frank legislation in hopes of building a legislative and regulatory bulwark against financial risk taking and corporate shenanigans that had brought us to the precipice of a second great depression. While a complete meltdown was narrowly avoided, taxpayers had to cough up hundreds of billions of dollars in bailout funds and millions lost their jobs in the ensuing recession that still persists in many parts of the country.
Two of Dodd-Frank’s more high profile reforms were targeted by Wall Street and major corporate interests for defeat; the first was the Consumer Protection Finance Bureau and the second was a proposed whistleblower program run through the SEC. Putting aside the CPFB (for today), the whistleblower program faced an onslaught of lobbying dollars and a multi-million dollar PR campaign hoping if not to defeat the program outright, to at least dilute it into irrelevance. The arguments were many but the one that seemed to gain some traction was the challenge such a program would have to corporate compliance programs and employee “hotlines” (which ironically came out of Sarbanes-Oxley, a yet earlier response to widespread corporate misconduct).
The argument by Zegna-wearing lobbyists was that employees would sidestep internal compliance programs for the riches of the SEC’s whistleblower program. Corporate efforts at self-regulation would be in tatters and billions of dollars spent on them would go wasted.
In the end, the whistleblower statute was in fact watered down (it’s no False Claims Act) but I’m happy to report it seems to be working. According to a recent story in the Financial Times, SEC officials say:
“The quality of tips they have received is surprisingly high and some have resulted in ‘huge cases.’”
According to Thomas Sporkin, who heads up a 50-attorney unit that assesses whistleblower submissions, the program, “provides a set of eyes and ears on the corporate side.”
So far from the sky falling and democracy being destroyed, whistleblowers are adding value to a critical area of government enforcement and I predict over time their role will continue to grow and become an ingrained component of the SEC’s mission.