Holding the Government Accountable

SEC Stands Up for Whistleblowers

At a time when whistleblowers are often treated like “skunks at a picnic,” at least one federal agency has taken promising steps to protect insiders who expose corporate malfeasance.

Last week, the Securities and Exchange Commission (SEC) issued guidance to clarify that industry employees are entitled to protections against retaliation even if they only blow the whistle internally to their employers. The SEC’s action responds to an appellate court ruling that said a then-GE Energy employee did not qualify for anti-retaliation protections because he did not blow the whistle directly to the government.

“Under our interpretation, an individual who reports internally and suffers employment retaliation will be no less protected than an individual who comes immediately to the Commission,” the SEC said in its guidance. “Providing equivalent employment retaliation protection for both situations removes a potentially serious disincentive to internal reporting by employees in appropriate circumstances.”

The Project On Government Oversight and its allies had asked the SEC to “clarify that whistleblowers are in fact eligible for protection when they make disclosures within their respective corporations.” For an agency with a less-than-stellar history of working with whistleblowers, the SEC’s latest guidance is an encouraging sign. It comes on the heels of SEC actions against KBR and other companies that allegedly retaliated against whistleblowers or tried to silence them.

In response to the new guidance, whistleblower attorney Jason Zuckerman wrote that “[t]he SEC’s demonstrated commitment to protecting whistleblowers will go a long way in ensuring the continued success” of the agency’s whistleblower program, which was revamped under the 2010 Dodd-Frank Act. In a letter to SEC Chair Mary Jo White, Tom Devine of the Government Accountability Project and Jordan Thomas of Labaton Sucharow said the “Commission’s leadership has significantly clarified the rules for corporate accountability.”

“Further leadership is needed, however,” Devine and Thomas wrote. Far too many companies are still using confidentiality agreements and other de facto gag orders to prevent employees from blowing the whistle in the first place. This practice “is so widespread, ingrained and dynamic that the occasional enforcement action against individual violators will have only a negligible impact,” they said. POGO and its allies have called on the SEC to pass an industry-wide rule clarifying that “any actions made by the wrongdoer in [an] effort to block the flow of whistleblowing evidence are illegal.”

In addition, we have urged Congress to extend other protections and incentives to whistleblowers. Last month, the Senate passed a bipartisan bill introduced by Senators Chuck Grassley (R-IA) and Patrick Leahy (D-VT) to strengthen protections for employees who blow the whistle on antitrust violations. POGO has also supported a proposal by then-Attorney General Eric Holder to provide larger financial rewards to employees who blow the whistle on banking fraud.

Whistleblowers are on the front lines exposing fraud in the corporate world; some employees blew the whistle on the reckless activities that fueled the 2008 financial crisis. The SEC and other agencies must do everything in their power to ensure whistleblowers do not suffer retaliation for speaking up.