Rep. Grimm’s Proposed Bill Would Gut Protections for Wall Street Whistleblowers

A draft bill proposed by Rep. Michael Grimm (R-N.Y.) would silence would-be Wall Street whistleblowers, undermine investigations and enforcement by financial regulators, and provide lawbreaking firms with an escape hatch from accountability, the Project On Government Oversight (POGO) wrote a House of Representatives subcommittee today.

In a letter to the Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises, POGO warned that Grimm’s bill would gut the whistleblower award programs at the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). The subcommittee is hearing testimony on Grimm’s bill today.

“Rep. Grimm is doing the bidding of Wall Street lobbyists who want to get rid of the whistleblower programs entirely,” Executive Director Danielle Brian said. “Taxpayers, investors and shareholders are the ones who will suffer if whistleblowers are kept from exposing wrongdoing on Wall Street.”

Whistleblowers play an essential role in exposing corporate misconduct, having helped return more than $27 billion taxpayer dollars since 1987 through the False Claims Act award program. The SEC and CFTC whistleblower award and protection programs—enacted through the Dodd-Frank financial reform legislation—would greatly enhance the quality of tips these regulators receive and lead to improved investigations and stronger enforcement.

Grimm’s draft bill would intimidate whistleblowers and undermine investigations and enforcement by requiring whistleblowers to file internal reports with lawbreaking firms before contacting the SEC and CFTC. In turn, the SEC and CFTC would have to notify the firms about whistleblower allegations before the agencies could take enforcement action—akin to a law enforcement agency tipping off the suspect of a criminal investigation.

POGO makes the point that Congress should not tinker with the programs ahead of implementation and an important study mandated by Dodd-Frank. After 30 months, the SEC Inspector General will conduct an extensive examination of the SEC whistleblower program to determine how it is working and if improvements are needed.

“It makes no sense to take an axe to the whistleblower programs before they are even fully implemented,” said Angela Canterbury, POGO’s director of public policy. “It is difficult to imagine that any potential whistleblower would be willing to step forward to help protect investors and taxpayers if any of the provisions in Rep. Grimm’s bill are passed.”

POGO’s letter to the Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises, May 11, 2011.