A recent article by Bloomberg Law attacking the U.S. Securities and Exchange Commission’s (SEC) highly successful whistleblower program has led to a series of rebuttals by whistleblower and anti-fraud advocates. Following an article by the whistleblower attorneys of Kohn, Kohn & Colapinto, Taxpayers Against Fraud (TAF) filed a memo to Congress on August 12 briefing lawmakers on the merits of the SEC Whistleblower Program and the misconceptions found in the Bloomberg article.
“Whatever the motives,” TAF’s memo begins, “TAF practitioners universally agree on one thing: Bloomberg blatantly manipulated facts about the program and disingenuously distorted the meaning of comments by some whistleblower lawyers in a way that borders on sensationalist journalism. With this brief set of talking points, TAF seeks to set the record straight on key points.”
The first misconception addressed by the TAF memo is that the program grants awards to whistleblowers culpable in fraud. TAF explains that the program “already contains powerful safeguards to prevent the most culpable whistleblowers from receiving awards.” It notes that individuals convicted of a crime related to their disclosure are ineligible for awards and that the agency has the discretion to lower awards based on a whistleblower’s culpability in the underlying violations. TAF explains that these guardrails have been highly effective and that it “can only find two instances where so-called ‘culpable’ whistleblowers received an award of any kind.’”
“That said, no whistleblower program can truly be effective without providing some degree of encouragement to culpable whistleblowers,” TAF continues. It notes that paying whistleblower awards to insiders with first-hand knowledge of misconduct “both enhances the SEC’s ability to detect frauds that otherwise would go undetected and deters fraudsters who face a significant risk that one of their co-conspirators could report the fraud.”
The second misconception the TAF memo tackles is that the SEC favors whistleblower attorneys who used to work for the agency. “Bloomberg cited no evidence to support such an outrageous charge of official misconduct because, simply put, there is none,” the memo states. “TAF is not aware of a single member-attorney who believes that the SEC grants awards based on attorney resumes rather than the merits of a whistleblower claim.”
TAF notes that numerous successful SEC whistleblower law firms have no attorneys with connections to the SEC. It also highlights that Bloomberg seemingly takes no issue with the fact that many former SEC Office of the Whistleblower employees, including former Chief Jane Norberg, leave the agency for jobs defending corporations.
The final misconception TAF addresses is the “secrecy” surrounding the SEC Whistleblower Program. “The Bloomberg article found fault with the lack of complete transparency in which the program operates,” TAF writes. “Such a critique misapprehends the very nature of a whistleblower case. What Bloomberg saw as ‘secrecy’ is, in fact, the bedrock confidentiality needed to encourage high-level would-be whistleblowers.”
TAF explains that by not disclosing information about whistleblower award recipients the SEC protects whistleblowers’ anonymity which in turns protects their livelihoods “and, in some cases, their very lives.” It also notes that the SEC’s ability to discretionarily waive technical award requirements, such as filing deadlines, is a strength of the program and not a suspicious practice.
“It is nothing short of perverse for Bloomberg to suggest that the SEC’s decision to waive a deadline or other rule to reward a worthy whistleblower could somehow be suspicious, regardless of whether the public learns the facts leading to that decision,” TAF writes.
In conclusion, TAF points to the overwhelming success of the SEC Whistleblower Program and claims that the program is the United States’ best run whistleblower program. “Simply put, the SEC Whistleblower Program effectively exposes massive fraud schemes and deters future fraud, all while providing the necessary assurances and protections to would-be whistleblowers,” TAF states.