Senator Charles E. Grassley (R-IA) recently released a letter to Mary Schapiro, the Chairman of the Securities and Exchange Commission (SEC) expressing his “serious concerns” with the Proposed Rules for implementing the whistleblower provisions of Dodd-Frank. Senator Grassley pointed out that that the “SEC does not have distinguished record of utilizing information from whistleblowers to correct wrongdoing in the public markets” and the whistleblower provisions of Dodd-Frank were created to remedy this serious problem.
The Senator laid out a number of his concerns with the SEC’s Proposed Rules including that the procedures for submitting a whistleblower claim are “overly complex, unduly burdensome, and include undefined terms that are often vague or overbroad.” He also explained that the exemptions the SEC created disqualify broad groups of people from filing whistleblower claims in contradiction of Congress’ intent.
One of Senator Grassley’s concerns has received a great deal of media attention – the SEC’s emphasis on internal compliance. As the Senator so aptly points out, “it is important to foster strong internal compliance functions, [but] the SEC should not throw the whistleblowers to the wolves by forcing them to take this first step. The SEC’s primary purpose is to protect investors-not internal compliance programs-from potential harm caused by fraud and misconduct.” The NWC has always maintained that whistleblowers should be protected from retaliation if they report to internal compliance, but requiring them to do so would violate the intent of Congress and would not be in the best interest of investors.
Senator Grassley did not have much sympathy for the SEC’s concerns. He explained that the DOJ and IRS have already been through this process and would be able to provide guidance on how to address the SEC’s concerns “without eviscerating whistleblower protections.” In sum, Senator Grassley’s letter tells the SEC to get over its hostility against whistleblowers and do its job.