Madoff Repeat Odds Rise With Neutered Watchdog: Susan Antilla
I don’t want to shock anyone, but I think there’s a lot of cheating going on in Corporate America.
I’m not talking about the Enrons and Lehmans or the Madoffs and Stanfords.
I’m wondering what else is going on that’s got the biggest guns in finance and commerce apoplectic about a new whistle- blower proposal.
Businesses are fighting full-tilt to defang a plan that could make it easier to expose skeletons in the closet. That’s not how people behave unless they’re hiding something.
In November, the Securities and Exchange Commission published a proposal that would provide financial incentives to whistle-blowers who have information about large financial frauds. Along with bounties, the agency also proposed new protections for snitches, who often lose their jobs once they divulge what they know.
In the months since then, dozens of companies, business groups and defense lawyers have barraged the SEC with objections.
“This is the most intense corporate lobbying I’ve seen in 27 years,” says Stephen M. Kohn, executive director at the National Whistleblowers Center. “They have to be afraid of something.”
Among the provisions of the Dodd-Frank financial overhaul bill that became law last year was a bounty program to reward whistle-blowers who had knowledge of substantial wrongdoing. If an informant tipped off the SEC on a case that wound up yielding $1 million or more in sanctions, the whistle-blower could receive as much as 30 percent of the penalties.
Keep It Local
There are lots of things critics don’t like about the proposal, but one detail puts them over-the-top: letting whistle-blowers bypass a company’s internal tip program and go straight to the SEC.
Opponents offer many reasons why that’s a bad idea. There’s some nonsense about wanting to assist the SEC, given its limited resources. There are concerns about greedy plaintiffs’ lawyers who will inundate the agency with frivolous claims that companies are best suited to weed out. Finally, there is the estimable corporate goal to learn about misconduct pronto so that management can clean things up. And if those greedy whistle-blowers seeking bounties are hiking off to the SEC with the dirt before the company can find out, how are virtuous corporate citizens ever going to be able to do the right thing?
That’s only part of the story. Some opponents of the proposal told the SEC in a Dec. 7, 2010, letter that the agency should amend its definition of retaliation to exclude cases where a company’s rules instructed workers to use in-house departments to report wrongdoing. Under that sort of scenario, the employee who spilled the beans to a regulator, but not to the company, could risk being fired for cause, and the company might avoid being liable for retaliation.
Another idea that could pretty much shut things down for whistle-blowers: Some critics of the SEC proposal want to bar lawyers who represent whistle-blowers from being entitled to a contingency fee based on any award. Good luck finding a lawyer who doesn’t care about getting paid.
For all the corporate talk about the admirable clean-ups that result when employees use internal compliance systems, real life can fall short. A former JPMorgan Chase & Co. broker sued the firm on Feb. 14, alleging she was fired after giving her bosses a report in which she suggested they “immediately exit the relationship” with a client she suspected of money laundering, according to the complaint. Jennifer Sharkey alleged that she submitted the report on July 30, 2009, and was fired six days later.
Suing Your Employer
JPMorgan spokesman Douglas Morris said that Sharkey’s related claims had previously been dismissed by both the U.S. Department of Labor and the U.S. District Court for the Southern District of New York and that the bank has asked the court to dismiss Sharkey’s recent complaint as well.
Her claims are only allegations, but if it turns out to be true that she was the second-highest producer in her department, but then was fired less than a week after suggesting the firm dump a lucrative client, the timing sure will look funny.
In the whistle-blower community, people like Kohn see signs that business will win this fight. Last week the SEC named Sean McKessy, corporate secretary for cigarette maker Altria Group Inc. and a former SEC enforcement lawyer, to run its new whistle-blower office. It was a disappointment to advocates who hoped that a more experienced watchdog would get the job. “Even if he’s the right man, it’s sending the wrong message,” Kohn says.
Should the SEC cave to demands that informants be forced to tell all to the company if they want to qualify for a bounty, it will only be a short-term fix for business. “The more pressure you put on the SEC to force people to report directly to the company, the more likely these people will go to places like WikiLeaks,” said Lynn E. Turner, former chief accountant at the SEC.
It makes for great sound bites to yap about greedy plaintiffs’ lawyers and frivolous whistle-blowers, but in the end, it turns out some employees witness bad things and want to see them fixed, not covered up.
Susan Antilla is a Bloomberg News columnist. The opinions expressed are her own.)
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