As the U.S. Securities and Exchange Commission (SEC) is set to vote on proposed changes that could undermine the success of its whistleblower program, it is important to remember the life-changing impact strong whistleblower laws can have on individuals. The story of whistleblower Eugene Ross serves as a sobering reminder of the personal hardships that can befall whistleblowers in the absence of strong whistleblower protections. His story should thus serve as an argument as to why the SEC must not weaken its whistleblower program.
Eugene Ross is a former Bear Stearns employee who uncovered the Amerindo Investment Advisor fraud in September 2004. The principals of the fraud, Alberto Vilar and Gary Tanaka, were charged with fraud and the misappropriation of at least $5 million of client funds. In 2008, they were both convicted, and the misappropriated funds were returned to investors. Ross served as a witness for the Department of Justice at the trial, and an internal memo he wrote documenting the fraud was used as a key piece of evidence. It was Ross’ whistleblowing which exposed these crimes and saved investors millions. This part of his story is a testament to the crucial role whistleblowers play in fighting securities fraud. As Ross put it, “every fraud victims’ best hope is a whistleblower.”
It is the events that occurred after Ross reported the fraud, however, that showcase why strong whistleblower laws do not just protect the markets but protect individuals’ lives. In the ninth months after Ross reported the fraud, Bear Stearns cut his pay by 30%, withheld commissions he earned, took away from his support and prevented him from opening new accounts. At that time, Ross was working from home to care for his sister, who was undergoing chemotherapy treatment, and ‘someone’ repeatedly cut the power for his computer. In 2005, Ross was constructively discharged, and Bear Stearns shipped him a box of broken glass to intimidate and humiliate him.
At the time, the recourse granted to Ross was to file an arbitration complaint against Bear Stearns through the Financial Industry Regulatory Authority, Inc. (FINRA). In April 2006, Ross filed a $1 million arbitration complaint against Bear Stearns for retaliation and constructive discharge. His arbitration hearing was postponed until 2009. In the end, FINRA arbitrators rejected Ross’ claim and ordered him to pay Bear Stearns $606,000. FINRA also suspended Ross’ license in all capacities, preventing him from finding work at brokerage firms. In 2010, Ross filed for personal bankruptcy.
Eugene Ross faced financial ruin as well as incalculable mental health hardships simply because he did the right thing and blew the whistle on wrongdoing. This is the personal toll that weak whistleblower legislation can inflict on individuals. In 2010, Congress passed the Dodd-Frank Act, which established the SEC Whistleblower Program and contained some of the world’s strongest whistleblower protections. Corporate whistleblowers like Ross are now entitled to monetary awards to reward them for their actions. The SEC Whistleblower Program also has a strong and secure whistleblower disclosure process, ensuring individuals can blow the whistle anonymously. Strong anti-retaliation provisions also allow whistleblowers who face retaliation to seek recourse in the courts and receive double back pay. A strong SEC Whistleblower Program can ensure that the tragic fate of Eugene Ross does not befall other individuals seeking to do the right thing.
However, proposed changes to the SEC Whistleblower Program threaten to undermine the efficacy of the program, which so far has been unquestionably successful in rewarding and protecting corporate whistleblowers. Proposed rules would strip the SEC of its authority to protect internal whistleblowers, implement a “soft cap” on the largest whistleblower rewards, and create unnecessary procedural hurdles that could disqualify otherwise eligible whistleblowers from receiving rewards. There is a risk-reward calculus involved in deciding to blow the whistle, and the SEC’s proposed changes threaten to shift the balance to where the risk outweighs the reward.
In voting on these proposed rule changes, the SEC should keep the story of Eugene Ross in mind. It should not just consider the effect whistleblower legislation has on the markets, but the life-changing effect on human lives. For as Ross puts it, “keeping strong whistleblower laws are not an abstract concern.”
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