Remember the banking industry and Wall Street fraud that brought the United States to the brink of economic collapse? A new bill introduced by Republican Congress members proposes to dismantle the protections put in place in 2010 to ensure that fraud and loose regulations would never again drag us to into another Depression.
It’s astonishing that just seven years after the Dodd–Frank Wall Street Reform and Consumer Protection Act was passed, U.S. legislators with strong ties to the financial industry are poised to destroy the regulations that returned a derailed economy to its tracks.
Even the Securities and Exchange Commission’s (SEC) Office of the Whistleblower, which was established by Dodd-Frank, is in jeopardy.
On April 28, the U.S. House of Representative’s Committee on Financial Services held a hearing on the Financial CHOICE Act, another disaster-packed piece of legislation with a positive-sounding name.
Stephen Kohn, executive director of the National Whistleblower Center, was one of the leaders invited by the Committee to submit written testimony about the proposed bill.
“It is absolutely critical that this Committee take no action that would restore the ‘days when corporate wrongdoing can be pushed into the dark corners of an organization,’” Mr. Kohn wrote to the Committee.
He was largely referring to the SEC’s whistleblower program, which has resulted in $953 million in financial sanctions from firms engaging in illegal conduct. The majority of that money was the result of investigations that would not have been possible had it not been for the eyes and ears of whistleblowers, who have an insider’s view that no regulators can ever have.
Whistleblowers have not only spared countless investors from financial harm, they have also helped recover billions of dollars for taxpayers by exposing fraud, waste, and abuse targeting federal programs and agencies.
“The (Securities and Exchange Act) whistleblower law targets these ‘dark corners’ and incentivizes key sources of information that have greatly aided the SEC’s enforcement policies,” Mr. Kohn said, adding that the proposed bill “would undermine this progress, and constitute a mistaken and troubling step backwards.”
Mr. Kohn’s testimony focused specifically on Section 823 of the proposed bill, which would strip some important protections from the SEA, such as excluding whistleblowers who are in any way culpable for the violation they are reporting. The demise of that one provision alone would have a devastating impact on the SEC’s whistleblower program, he indicated.
Mr. Kohn explained further:
“The SEC’s current rule is consistent with similar restrictions in other reward and whistleblower anti-retaliation laws. There is simply no reason to adopt the amendment set forth in the Draft Discussion document. Conversely, there are numerous reasons not to adopt the amendment, as it is overbroad and would seriously undermine other aspects of the SEC’s whistleblower program. Section 823 would harm investors, make investigations more costly and difficult, undercut the confidentiality provisions in both the SEA and the Sarbanes-Oxley Act (“SOX”), and prejudice employees seeking to do the “right thing” by taking the risk of losing their jobs and careers by lawfully reporting securities fraud to the appropriate authorities.”