NWC Report Proves that Qui Tam Statutes Have “No Negative Impact” on Compliance Programs

The National Whistleblowers Center (NWC) publicly released its report to the Securities and Exchange Commission entitled "Impact of Qui Tam Laws on Internal Compliance." This study was conducted in response to concerns from corporations and the SEC Commissioners about Dodd-Frank’s potential impact on existing corporate compliance programs. Corporations have been heavily promoting the idea that greedy employees will use Dodd-Frank to receive large monetary awards and will consequently destroy internal compliance efforts to stop fraud. This is not true! In fact, as NWC Executive Director Stephen M. Kohn stated it is “simply a smoke and mirrors game [by corporations] to get the SEC to implement rules that will discourage employees from blowing the whistle on securities fraud.”

The NWC study analyzed cases filed under the False Claims Act from January 1, 2007 to present and found that whistleblower rewards have "no impact whatsoever on the viability of internal corporate compliance programs or the willingness of employees to report suspected violations to their employers."  It is similar to a study published in the New England Journal of Medicine analyzing False Claims Act judgments against the pharmaceutical industry.

Summary of Findings:

• 89.7% of employees who would eventually file a qui tam case initially reported their concerns internally, either to supervisors or compliance departments. (Page 5)
• There was only one case where a compliance official reported directly to the government. (Page 8)
• There are numerous Banking and False Claims Act cases where corporations vigorously argued that employees were not protected from retaliation if their disclosures were made internally. There were no cases in which corporations argued that internal reporting should be protected as a matter of law. (Page 2 & 11)

Conclusions and Recommendations for the Final Rule can be found on Pages 24-28.

The NWC has always maintained that employees should be protected regardless of whether they choose to report their concerns internally to corporation or directly to a government agency. It is corporations that have vigorously argued in court for years that they could fire an employee who only reported internally. Now, in light of the strong reward provisions in Dodd-Frank, they have suddenly changed their tune. It is up to us to ensure that the SEC does not fall for their games. I urge every American concerned about corporate fraud and preventing the next financial meltdown to TAKE ACTION by sending their own letter to the Securities and Commodities Commissions demanding that they enact Final Rules that will protect, encourage, and reward whistleblowers.