The SEC is about to get reinforcements in its fight against white-collar crime: employees with inside knowledge of misdeeds. On May 25, the SEC adopted bold new rules that will provide whistleblowers with major incentives to report corporate frauds and other financial crimes.
The new rules were mandated as part of Dodd-Frank, and show the long reach of that historic law. Whistleblower programs -- which provide huge cash rewards to employees who can document corporate wrongdoing -- have been successful in other sectors, such as pharmaceuticals and healthcare, in providing government prosecutors with enough evidence to impose penalties on corporations for major wrongdoing. Bringing this tool to the financial sector is long overdue.
Needless to say, Wall Street hates the new whistleblower rules. The Business Roundtable blasted the rules saying they don't provide companies with the opportunity to "self-regulate and self-correct." "Our member companies, as well as other regulated public companies, have devoted substantial resources to establishing a culture of compliance and integrity within their organizations."
I'm all for self-regulation -- when it works. But obviously it hasn't in the financial sector, which is why the government is stepping in.
One part of the recent food safety bill signed by President Obama that didn't get much attention are its protections for employees in the food industry that blow the whistle on illegal practices. The implications of this piece of the bill could prove significant over time. Whistleblowers have played an important role in exposing corruption in other industries, especially Big Pharma. If employees in the food sector feel more empowered to blow the whistle, the result could be safer food and fewer deaths.
Unfortunately, the law is not as extensive as it should be and doesn't cover crucial segments of the food industry. A press release from the Government Accountability Project nicely captured what a mixed bag the new law is:
"These whistleblower protection provisions are a monumental change in public health protection, and a huge win for food safety," said GAP Food Integrity Campaign (FIC) Director Amanda Hitt. "Whistleblower rights don’t get any stronger than this. Without a doubt, these protections will allow more workers to come forward before outbreaks, which will save lives and enhance food integrity. Lawmakers who made this happen should be commended for standing up for public health."
The protections only extend to corporate workers who report violations of FDA regulations -- not to violations of USDA regulations, which cover the meat and poultry industries. On this point, GAP Legal Director Tom Devine added: “There is no rational excuse to protect corporate workers challenging violations of FDA food safety laws while allowing them to keep getting fired at will for defending USDA food safety laws.”
The law won't reach its full potential unless it is widely publicized within the food industry and workers know their rights. Even before Obama signed the law, the Government Accountability Project, which is a leading whistleblower protection group, had begun an effort to encourage whistleblowing within the food industry. In October it launched a website for the Food Integrity Campaign, FoodWhistleblower.org. The campaign is described this way on the site:
The mission and long-term objective of FIC is to enhance overall food integrity by facilitating truth-telling. FIC seeks to accomplish this mission by strategically working to alter the relationship of power between the food industry and consumers; protecting the rights of those who speak out against the practices that compromise food integrity; and empowering industry whistleblowers and citizen activists.
You can read the full text of the new law below. And below that you can watch an interview with former FDA Commissioner David Kessler on why food workers play such an important role in preventing deadly food problems from killing Americans.
After years of neglect, financial whistleblowers may finally see the settlement paydays bestowed upon their fellow exposers from other industries. Here is a recent excerpt from a report from the New York Times:
Congress and financial-market regulators are revamping a reward system for whistle-blowers, offering big payouts for tips about a host of securities and commodity law violations, to be doled out from a new $451 million fund.
While corporate exposers, through the False Claims Act, receive a substantial proportion of the settlement fee in exchange for their assistance to the federal government, many of the monetary incentives offered to corporate whistleblowers, even after decades of financial scandals, have been largely absent for those employed for financial firms.
Why now? Clearly there has been a populist uprising against many of the companies who, through neglect, greed or a stunning lack of understanding in regards to their own financial instruments have helped bring about the most recent crisis and recession. Yet, the SEC may still be reeling from the Madoff case in particular, in which they missed obvious signs for nearly three decades that one individual had been responsible for stealing billions. If these measures had been in place, adequate incentives could have stopped his crime spree years ago.
David Callahan