A bipartisan group of senators this week introduced a bill designed to expand the scope of protection for whistleblowers who bring to light violations of US securities and commodities law.
The bill would extend protection from retaliation to whistleblowers who opt to report wrongdoing internally before or instead of reporting directly to the SEC or Commodities Futures Trading Commission (CFTC). It would also speed up monetary awards to whistleblowers whose reports result in successful enforcement actions.
Senate finance committee chair Chuck Grassley, R-Iowa and senators Tammy Baldwin, D-Wisconsin, Joni Ernst, R-Iowa and Dick Durbin, D-Illinois introduced the Whistleblower Programs Improvement Act (WPIA).
The SEC and CFTC enforcement programs were created under the Dodd-Frank Act. For example, the legislation authorized the SEC to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to an enforcement action in which more than $1 million in sanctions is ordered. An eligible whistleblower can collect a reward of between 10 percent and 30 percent of the money collected. The SEC has awarded a total of roughly $387 million to 66 individuals since issuing its first award in 2012.
Dodd-Frank also expanded protection for whistleblowers and broadened prohibition against retaliation. The SEC, for example, implemented rules that enabled the agency to take legal action against employers that retaliate against whistleblowers. Employers may not fire, demote, suspend, harass or discriminate against employees for reporting conduct they reasonably believed violated the federal securities laws.
But a US Supreme Court ruling last year held that an employee is protected by Dodd-Frank’s anti-retaliation provision only if he or she reports a suspected securities violation to the SEC – not if he or she only files a report within his/her company.
Most companies encourage or require employees to report concerns internally as part of their compliance program, often via a hotline. Industry professionals generally support such efforts as a means of enabling companies to address issues internally and potentially self-report to regulators, which can help lead to them receiving lighter or no penalties for any wrongdoing.
The sponsors of the WPIA argue that Congress should encourage internal disclosure as the best way for public companies to prevent fraud and protect investors. They are concerned that the Supreme Court ruling will have a chilling effect on internal reporting as more tipsters go directly to the SEC.
‘There’s no reason why those who want to report wrongdoing internally should face potential retaliation from the exact people they are reporting to,’ Grassley says in a statement. ‘Internal disclosures can be the fastest and most effective way for a company to remedy problems, prevent fraud and protect investors. Our bill will ensure that those who do the right thing and report violations will be protected.’
Among other things, the legislation would:
- Protect whistleblowers who report information to a supervisor or other individual they believe can take corrective action
- Require the SEC and CFTC to issue an initial award determination within one year of the deadline to apply for an award
- Give the CFTC more flexibility to share whistleblower information with law enforcement authorities and use the consumer protection fund to educate stakeholders about its whistleblower program
- Harmonize dispute resolution procedures under the SEC whistleblower protection law with provisions within securities and commodities laws to ensure whistleblowers can pursue judicial remedies.
Stephen Kohn, partner with whistleblower law firm Kohn Kohn and Colapinto and chair of the board of the National Whistleblower Center, supports the bill. In a statement, he complains that long delays in issuing rewards are harming whistleblowers who may have to wait more than four years to obtain a reward, often living in poverty after being fired.
‘Most employees report securities violations to their employers before going to the SEC. This bill will ensure that employees who make internal reports have full protection against retaliation,’ he says. ‘The bill will fix a loophole in the current law that permits companies to fire whistleblowers who raise internal complaints but do not also directly report these violations to the SEC. This distinction undermines compliance efforts and has resulted in numerous firings.’
He adds that the bill would also fix another problem by ending mandatory arbitration in securities whistleblower cases. ‘Forcing whistleblowers to litigate their wrongful discharge cases in corporate-controlled mandatory arbitration proceedings is the kiss of death for most whistleblowers. Mandatory arbitration denies whistleblowers their day in court,’ he says.
Groups including the Government Accountability Project, Liberty Coalition, Project On Government Oversight and Taxpayers Protection Alliance have also written to the senators in support of the bill.
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
