The Hypocrisy Behind Corporate Attacks on SEC Whistleblower Program

According to a recent Forbes article, a group of powerful corporations and corporate lobbying groups have been working to kill the Securities and Exchange Commission's (SEC) whistleblower reward program since it was created by Congress nearly two years ago.

The Chamber of Commerce and General Electric have worked to undermine the program that was begun by the passage of the Dodd-Frank Act. The lobbyists have been arguing that the program is misguided and should be disbanded because employees should be required to first report any wrongdoing to their employer's internal review program before filing a claim with the SEC. The corporate groups have claimed that the existing program will lead to the watering down of internal compliance programs due to the attractiveness of the SEC's reward money. Officials from the Chamber of Commerce have said that the program, "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."

Thankfully the SEC has not fallen for the argument of the corporate lobbyists. They instead pointed out that the whistleblowers themselves are in the best position to know whether reporting an incident internally is safe for them and their career or if going to the SEC is best. Requiring whistleblowers to report all incidents first to their company would serve only to discourage reporting in the first place as people would avoid becoming targets for retribution.

A recent study commissioned by the Ethics Resource Center (ERC) says that the SEC has it right. Their survey shows that of the 4,700 people who reported wrongdoing by their employers, only 2% went outside the company to report violations without first reporting internally. The ERC data shows that only one out of six whistleblowers ever reported to an outside group and of those who did, a full 84% did so only after first trying to report it to their employer. The notion that the reward money is compromising internal policing programs is absurd given how few employees go to outside groups without first trying to turn it over to their bosses.

The factor that influences whether reports go inside or outside a company is the trust workers have for their management team. The ERC survey found that in companies where employees trust senior management, 86 percent only make internal reports. In companies where employees do not trust senior managers, that number drops to 70 percent.

In a terrible irony, GE is now claiming that one of their former employees is not entitled to whistleblower protections because, get this, the employee reported the problem internally rather than going first to the SEC. So because the employee did exactly what GE and other corporations say they should do the employee ought to be denied whistleblower protection? Khaled Asadi was fired after he reported allegations of GE Foreign Corrupt Practices Act violations in Iraq to his supervisor and GE Energy's ombudsperson.

The actions by GE prove the SEC's point more than almost anything else. Employees have clear reasons to worry about reporting problems internally. If they do they might find themselves like Mr. Asadi, unemployed.

Whistleblower Case Against GE, New Report Show Real Motives For Attacks on SEC Program, by Erika Kelton, published at, June 6, 2012.

See Our Related Blog Posts:
Expanding Whistleblower Protections
Primer on the Foreign Corrupt Practices Act

Categories: SEC Whistleblower