A hearing titled, “Legislative Proposals to Address the Negative Consequences of the Dodd-Frank Whistleblower Provisions,” was held today. Focused on proposed legislation from Rep. Michael Grimm (R-NY), the hearing looked at how to “improve” the Dodd-Frank Act by “preserving” the internal reporting mechanisms or processes that companies have setup for whistleblowers (e.g. hotlines).
Rep. Grimm, who is likely cozying up to securities and investments companies which might fund his re-election campaign, essentially argued that the changes in Dodd-Frank make it highly likely the “floodgate” will open. Frivolous claims and costly penalties will arise from the fact that whistleblowers are now allowed to go to the SEC before reporting fraud or corruption through a company’s internal reporting system.
Marcia Narine, a witness appearing before the committee on behalf of the US Chamber of Commerce, suggested Dodd-Frank provisions aim to treat all companies like criminals and assume if employees bring a tip documents will begin to be shredded to cover up corruption or fraud. She found this to be unfair and argued that companies are being penalized for not doing their job, for not paying attention to a whistleblower that had information on Bernie Madoff and was ignored.
Kenneth Daly of the National Association of Corporate Directors (NACD) asserted that the provisions in Dodd-Frank change the “emphasis from problem solving to getting paid for problem identification.” What developed later in the hearing was this conventional wisdom that whistleblowers could now be rewarded for malfeasance.
Professor Geoffrey Rapp, author of Beyond Protection: Invigorating Incentives for Sarbanes-Oxley Corporate and Securities Fraud Whistleblower indicated that whistleblowers are only able to collect a “bounty” if information they provide to the SEC leads to enforcement action, which reach a certain dollar amount threshold. He also indicated that in cases where securities fraud and tax fraud has been reported whistleblowers have been given very low amounts of money so there is little reason to suggest they will now run to the SEC to collect in what GOP representatives seem to think is some kind of newly established lottery.
Two representatives rightfully addressed the concerns this hearing’s organization raised. Rep. Gary Ackerman (D-NY) defended whistleblowers saying, “I don’t think we should reduce whistleblowers to the status of bounty hunters,” and asking, “Who are we trying to protect: corporate interests or are we trying to protect the system and innocent people?”
Rep. Maxine Waters (D-CA) appeared to be visibly pissed at the premise of the hearing. She stated, “My colleagues on the other side of the aisle seem to think now that Dodd-Frank is law employees will be racing to the SEC to collect bounties.”
Throughout, one would have been forgiven for thinking the GOP leaders and three of the four witnesses thought corporate employees might as a result of Dodd-Frank transform into people who took after Boba Fett. Representatives on the committee even suggested the employees might try to see if they could get company executives to pay them more money than the SEC so they would stay quiet. Essentially, a suggestion that they might engage in extortion.
Right in the last moments of the hearing, Rep. Waters exposed the hypocrisy and absurdity underlining the hearing. She asked Rep. Scott Garrett (R-NJ) why there was language on the Financial Services Committee site urging whistleblowers to submit information on waste, fraud and abuse.