SEC Whistleblower Program Moves Forward In Congress

The House Financial Services Committee recently voted 41 to 28 in favor of a bill known as the Investor Protection Act of 2009, being sponsored by Rep. Paul E. Kanjorski (D-Pa).  Kanjorski is Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.  The bill is H.R. 3817.   One part of the bill would create a whistleblower program at the Securities and Exchange Commission (SEC), similar in some respect to the IRS whistleblower program.  Under the bill, if a whistleblower provided information to the SEC that resulted in penalties of greater than $1 million, then the SEC could award the whistleblower up to 30% of the amount of the penalty.  

The bill has some good and some bad.  One of the good aspects of the bill is that it would explicitly permit anonymous whistleblowers to qualify for the reward.  In order to qualify for the award, an anonymous whistleblower would need to submit the information through an attorney, so that the SEC has a point of contact with the whistleblower.  This provision is very beneficial to whistleblowers who are trying to preserve their anonymity because of fears of losing their jobs, being blacklisted, or being harassed. 

A potentially bad aspect of the bill is that it makes whistleblower rewards discretionary with the SEC, and not subject to any judicial review.  By leaving the awards so open-ended, the bills runs the risk that the amount of the awards will be too small or too arbitrary, thereby undermining the incentive for whistleblowers to come forward with valuable information.

In any event, any sort of formal whistleblower reward program at the SEC is a huge step in the right direction for an agency that has a history of not taking whistleblowers seriously enough, as the Bernie Madoff story made clear.   We’ll keep track of this bill as it continues to work through Congress, and will post if there are any new developments.



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