Harvey Pitt — who was Securities & Exchange Commission chair during a time when the SEC let Wall Street run wild, leading to the financial mess the U.S. is in, and who has spent most of career representing corporate interests – once again fails to get it right.
Testifying before the Senate Banking Committee on “Enhanced Investor Protection After the Financial Crisis”, Pitt criticized Dodd-Frank saying it would fail to protect investors. Not surprisingly, he echoed Wall Street’s criticism of the SEC whistleblower program with the usual dire predictions that it will ruin all internal compliance programs.
Such predictions are baseless. The False Claims Act has proved over decades that the threat of whistleblower actions has encouraged the creation and strengthening of internal compliance programs. And although the SEC whistleblower rules do not require internal reporting of fraud before going to the government, there is no need to choose between internal reporting and a reward. You can report internally and wait to see what happens. If the company does nothing, you can go to the SEC. If the company reports to the SEC, you still get a reward if you report to SEC within 120 days of reporting internally.
Whistleblowers generally only turn to outside options when their concerns have been ignored or they have been retaliated against for reporting problems. The SEC recognized when it finalized the rules for the SEC whistleblower program that whistleblowers need the option of going to the SEC directly.