Hearing of the Capital Markets and Government Sponsored Enterprises Subcommittee of the House Financial Services Committee - Whistleblower Improvement Act of 2011, H.R. 2438

Statement

U.S. Rep. Gary Ackerman (D-NY) today delivered the following opening statement during consideration of his amendment to the Whistleblower Improvement Act of 2011, H.R. 2438 at a markup of the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises.

Mr. Chairman, numerous times over the past few years we've all heard people ask the question, "Why haven't the financial and mortgage industry executives that defrauded so many people and caused the financial crisis been thrown in jail?" The answer is, that without clear evidence proving the actual intent to defraud, the criminal cases are just too hard to make. The purpose of the SEC's whistleblower regulations is to encourage the submission of the type of high-quality evidence that allows law enforcement to build cases that demonstrate intent. Wall Street knows all about carrots. It is high time they respect the stick.

If you have ever been on the New York City subway or bus you've probably seen a sign that reads: "If you see something, say something." And just in case you're confused about who the best person is to report a crime or suspicious behavior the bottom of the sign offers some logical advice. It says, "Tell a cop." For U.S. securities laws, that cop is the Securities and Exchange Commission (SEC).

However, the bill before us today requires employees toinstead first report potential securities lawlessness and misconduct to the firm that is allegedly engaged in misconduct prior to reporting that conduct to the cop on the beat, the SEC. In fact, this bill without this amendment would penalize the employee if the employee reports the possible criminal misconduct to the SEC first by making him or her ineligible to receive the reward he now gets from the SEC for providing credible information that leads to a fine. Requiring the whistleblower to report misconduct to the same people that are allegedly engaged in misconduct not only does not make any sense, it is simply dangerous.

My amendment is simple. It would change the internal reporting requirement as a requirement from the bill and replace it with the SEC's current whistleblower reporting regulation. The amendment would encourage--but not require--the internal reporting the gentleman's bill seeks by increasing the whistleblower's share of the reward not removing it, if he or she makes an internal report first. This amendment creates a market-based solution that incentivizes whistleblowers if they report internally if he feels comfortable enough with their company to do that, and encourages companies to build robust internal compliance programs that earn the trust of their employees.

The reality is that some companies are engaged in serious illegal misconduct and will go to great lengths to cover it up. Requiring employees to tell his company that he knows that it is knowingly engaged in misconduct would put whistleblowers in a precarious position. In a May 2011 letter to SEC Chairman Schapiro, Senator Charles Grassley, the Ranking Republican on the Senate Judiciary Committee, wrote that, "The SEC should not throw whistleblowers to the wolves," by requiring whistleblowers to report internally first. Yesterday, Whistleblower Specialist and Certified Fraud Examiner Harry Markopolos, who fought to bring the Madoff fraud to light, wrote to Chairman and Ranking Member of this subcommittee yesterday and stated that this bill would, "Expose every SEC whistleblower to isolation, humiliation, retaliation and termination by requiring them to tell their bosses and employers about fraud in the company ever before they reported the fraud to the SEC." I could not agree more with the concerns expressed by Senator Grassley and Mr. Markopolos.

I urge my colleagues to support my balanced approach that builds on the bill, both protects whistleblowers while maintaining and increasing their awards if they feel they can go to their company first, and encouraging companies to build credible compliance programs.

Mr. Chairman, I would like to request unanimous consent to submit for the record the letters from Senator Grassley and Mr. Markopolos.

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