U.S. Chamber Warns New SEC Whistleblower Rule Will Undermine Corporate Compliance Programs
— ‘The SEC has chosen to put trial lawyer profits ahead of effective compliance and corporate governance’
By US Chamber of Commerce
WASHINGTON, D.C.— David Hirschmann, president and CEO of the U.S. Chamber’s Center for Capital Markets Competitiveness, and Lisa Rickard, president of the Institute for Legal Reform, issued the following statement on the SEC’s adoption of whistleblower rules:
“In approving this new whistleblower rule, the SEC has chosen to put trial lawyer profits ahead of effective compliance and corporate governance. This rule will make it harder and slower to detect and stop corporate fraud – by undermining the strong compliance systems set up under Sarbanes Oxley to ensure companies take whistleblowers seriously. Armed with trial lawyers and new large financial incentives to bypass these programs, whistleblowers will go straight to the SEC with allegations of wrongdoing and keep companies in the dark. This leaves expensive, robust compliance programs collecting dust, while violations continue to fester, eroding shareholder value.
“We agree that the SEC should have access to the information it needs to detect and deter fraud. However, not requiring simultaneous reporting to both the company and the SEC prevents quick action to investigate and solve problems if they exist. Not informing the company of a potential fraud and waiting for the SEC to act is the equivalent of not calling the firefighters down the street to put out a raging fire and instead calling the lawyers from the next town to sue over the fire instead.
“Companies rely on anonymous whistleblowers to provide information about malfeasance or fraud. With this information source cut off, companies must wait weeks, months, or years for the SEC to notify the company about potential wrongdoing. The company is in the best position to immediately investigate and mitigate any violations, not the SEC who will be inundated with thousands of tips it won’t be able to handle.
“We have already seen trial lawyers running advertisements and training seminars on how to profit from bounty programs adopted under these rules. As adopted, the SEC’s flawed rule will lead to trial lawyers urging whistleblowers to keep the company in the dark as long as possible so as to maximize any available bounty. This is bad news for the shareholders and workers of any company victimized by a fraudulent actor.
“This rule was intended by Congress to be one that ensures that the SEC takes whistleblower complaints seriously. We agree. The right approach, however, is not to have the SEC keep companies in the dark about potential problems reported to the SEC. The most effective approach is to ensure both companies and the SEC have access to information about ongoing frauds so they can be stopped as soon as possible and without needlessly increasing litigation.”
Since its inception in 2007, the Center for Capital Markets Competitiveness has led a bipartisan effort to modernize and strengthen the outmoded regulatory systems that have governed our capital markets. The CCMC is committed to working aggressively with the administration, Congress, and global leaders to implement reforms to strengthen the economy, restore investor confidence, and ensure well-functioning capital markets.
ILR seeks to promote civil justice reform through legislative, political, judicial, and educational activities at the national, state, and local levels.
The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations.