Encouraging Whistleblowers, Discouraging Fraud - Letter to the Editor

The Washington Post published the following letter from Phillips & Cohen partner Erika A. Kelton.

Encouraging Whistleblowers, Discouraging Fraud

March 21, 2009

Given the many stories about the Securities and Exchange Commission's failure to pursue a whistleblower's information about Bernard L. Madoff's Ponzi scheme, it was disappointing that The Post didn't mention the announcement that SEC Chairman Mary Schapiro made at a recent congressional hearing ["SEC Calls For More Funds to Avert Cuts in Operations, Business, March 12]: The SEC plans to propose bounties to encourage Wall Street insiders to provide substantive information about investor fraud.

This change in mindset toward whistleblowers is huge. Offering mandatory rewards to whistleblowers would increase enforcement capabilities and provide a deterrent against fraud. "Whistleblowers tend to do a lot of the work for you, hand you something that's pretty fully baked," Ms. Schapiro told a House subcommittee last week.

But for a whistleblower program to be effective, more than rewards are needed. A requirement that the SEC investigate substantive whistleblower tips, as is required by the False Claims Act in government fraud cases, and a whistleblower office like the IRS has must be part of a comprehensive, effective whistleblower program.

The SEC now seems to recognize the importance of whistleblowers. The Post should do the same.

Erika A. Kelton
March 21, 2009

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/20/AR2009032003188.html