Legislative Proposals to Address the Negative Consequences of the Dodd-Frank Whistleblower Provisions
Thank you, Mr. Chairman, for holding this hearing.
Under the Dodd-Frank Act, Congress recognized that robust whistleblower protection is critical to preventing another financial crisis.
Prior to Dodd-Frank, the inducements for whistleblowers to step forward were inadequate when balanced against the tremendous countervailing social and economic disincentives.
Contrary to some of my colleagues on the other side of the aisle, I don't believe that whistleblowers are eager to run to the SEC and put their jobs, their 401(k)s and sometimes even their friendships on the line. Significant evidence suggests that whistleblowers are often fired, quit under duress, or are demoted. Additionally, whistleblowers are often blacklisted from working in their industry, and experience severe social ostracism and personal hardship.
The bounties and systems set-up under Dodd-Frank were crafted precisely to combat these tremendous disincentives. And it is important to note that we did not set-up these systems merely to provide pay-outs to whistleblowers for the sake of rewarding them. In fact, we set-up these systems to help empower the SEC -- Wall Street's cop on the beat -- to recover money owed to taxpayers. Because everyone knows that informants are one of the best tools to help cops do their jobs.
Additionally, this bill would further weaken Dodd-Frank by making bounties paid by the SEC to whistleblowers discretionary, rather than mandatory. I think that would amount to a step backwards. Between 1988 and 2000, the SEC had the authority to pay bounties under the Insider Trading and Securities Fraud Act, and paid just $160,000 to five whistleblowers over that entire period.
And ironically, I should note that one of the criticisms of the whistleblower award provisions in Dodd-Frank is that it will cause the SEC to be overwhelmed with tips from individuals trying to collect big rewards. I would have greater sympathy for this argument if the same folks that are making it weren't also trying to cut the funding the Commission needs to do its job.
I would also say that I am deeply concerned with corporate crime being treated less seriously than street crime. For instance, when it comes to street crime, investigators are not required to first alert the subject of the investigation. Why should corporate crime be held to a lower standard?
Lastly, I would point out that yesterday, Senator Charles Grassley of Iowa issued a press release saying that the SEC's proposed rule on whistleblowing is too weak. It is deeply concerning, then, that House Republicans would try to weaken Dodd-Frank further with this legislative draft.
Thank you, Mr. Chairman. I yield back the balance of my time.