Society typically thinks of a whistleblower as a “person of conscience,” someone who comes across wrongdoing in the workplace and is compelled to expose and correct it. Given the threat this poses to the wrongdoers, harassment, retaliation, and expulsion usually follow. The law deals with these situations by making it unlawful to retaliate against whistleblowers, and compels the wrongdoers to compensate the whistleblower for lost wages, medical expenses, and, in some cases, anguish, humiliation, and loss of enjoyment.
Other laws might provide the whistleblower with a percentage of recovery, 10%-30%, as in the case of the False Claims Act or several financial whistleblower laws. The rationale for such an award is to incentivize people to come forward and expose fraud that costs society millions, if not billions, of dollars, and to make the fraudsters think twice about committing such acts in the future.
In the federal False Claims Act, the whistleblower need not be a human being – it could be an entity, such as a union or organization.
During the rulemaking process to establish the Securities and Exchange Commission’s new whistleblower office, authorized by the Dodd-Frank financial reform bill of 2010, several groups tried to get SEC to define “whistleblower” to include entities such as them. They did not succeed.
On March 4, 2011, and March 15, 2011, Tom Devine (Government Accountability Project Legal Director), Mark Cohen (then-GAP Executive Director, now Deputy Special Counsel, U.S. Office of Special Counsel), Michael Smallberg (POGO Investigator), Patrick Szymanski (Change to Win General Counsel), Reuben Guttman (Voices for Corporate Responsibility Co-Founder), and Jason Zuckerman (then-GAP Advisory Committee Director and The Employment Law Group Principal, now OSC Senior Legal Advisor) met with SEC Commissioners to discuss a number of things in a joint letter they wrote, dated December 17, 2010. Here is that letter.
Within that letter is the following proposal:
1. Definition of a Whistleblower
The proposed definition, under subsection (a), states “[y]ou are a whistleblower if, alone or jointly with others, you provide the Commission with information relating to a potential violation of the securities laws. A whistleblower must be an individual. A company or other entity is not eligible to be a whistleblower.” (Proposed § 240.21F-2, emphasis added).
Although the word “individual” is used in the enabling statute, use of this word in similar whistleblower legislation, i.e., the False Claims Act, 31 U.S.C. § 3730 (d), has been construed to allow non-governmental organizations (NGOs) and/or worker representatives, including labor unions, to bring claims. See In Us. ex rel. Koch v. Koch Industries, Inc., 1995 WL 812134, at *12 (N.D.OkL Oct 6, 1995) (the Court held “the whistle-blowing insider is not the only type of person that can qualify as a qui tam plaintiff . .. A qui tam plaintiff may qualify as an original source where the ‘core’ information on which Plaintiffs’ (complaint) is based was obtained through their own investigation.”); US. ex reI. Plumbers and Steamfitters Local Union No. 38 v. C. W Roen Canst. Co., 183 F.3d 1088 (9th Cir. 1999) (no question that a union had standing to bring a qui tam action alleging a contractor and its president and office manager violated the False Claims Act.); US. ex reI. Local 342 Plumbers and Steamfitters v. Dan Caputo Co., 321 F.3d 926 (9th Cir. 2003) (local unions sued contractors under the False Claims Act for failure to pay prevailing wage rates. While the claim was not successful, it was not because the unions lacked standing).
The SEC faces a daunting task in weeding through claims made by whistleblowers. Accordingly, the rules should encourage claims made by those individuals and entities who are in the best position to document and analyze the wrongdoing. Labor unions and NGOs have the institutional capacity to digest and analyze relevant information in order to bring well documented claims. Labor unions and NGOs, by their very nature, understand the complexities of the administrative compliance process and potentially have the experience to manage claims. Therefore, discouraging these institutions from acting as whistleblowers and bringing claims to the SEC, defeats the overall intent of the Act. If these regulations are meant to serve the public interest, they must encourage whistleblowers with the capacity to bring the most meritorious claims to come forward.
It’s an interesting argument, however the last two lines prove too much. You see, entities such as GAP and the law firm The Employment Law Group are not conscientious employees caught in an ethical dilemma at the workplace (or their local unions whose members are affected by the wrongdoing and retaliation). These entities exist to serve such employees: one ostensibly for charitable purposes (GAP), the other for profit (ELG). They can get attorneys’ fees under the law; is that not sufficient incentive to help employees come forward? At bottom, the line about serving the public interest is unpersuasive because it’s apparent that this proposal would serve these organizations’ self interest.
That said, the SEC was tight-lipped in responding to this proposal:
We have decided not to extend the definition of whistleblower beyond natural persons because we believe that this is consistent with the statutory definition, which provides that a whistleblower must be an “individual.” The ordinary meaning of “individual” is “natural person,” and nothing in the statutory text or legislative history suggests a different meaning here. Although one commenter identified a reference to “individuals” in the False Claims Act to argue that the term should be read to extend beyond natural persons, we note that the False Claims Act otherwise repeatedly refers to whistleblowers as “persons” (which ordinarily extends beyond natural persons),30 and we believe this explains the different result under that Act.
30 Compare 31 U.S.C. 3730(e)(4)(B) with id. 3730(b)(1) (“A person may bring a civil action ….”), and id. 3730(b)(4)(B)(5) (“When a person brings an action ….”).
So what does this reveal about GAP, et al? Perhaps nothing earth-shattering, that institutions, no matter their purpose, will seek out opportunities to sustain and enrich themselves.
The key question, however: at whose expense?