Amid Bank Bailouts, SEC Whistleblower Improvements Urged by Senators Grassley & Warren


In this week of new bank bailouts (following Silicon Valley Bank’s), a bipartisan group of five Senators has urged common sense improvements to the SEC Whistleblower laws.  These Senators emphasize the “crucial role of whistleblowers” in protecting both investors and taxpayer funds.

  • The SEC Whistleblower Reform Act of 2023, co-sponsored by Sens. Grassley, Warren, Collins, Warnock, and Mastro, removes some predictable roadblocks to an effective SEC Whistleblower program.  To summarize from Sen. Grassley’s release, the Act would:
    1. Protect whistleblowers from retaliation if they report violations only in the workplace.  Currently, whistleblowers are protected only once they report misconduct directly to the SEC or certain other officials.
    2. Mandate timely processing of SEC Whistleblower claims and awards.  The SEC is now working through a years-long backlog of claims.
    3. Clarify that SEC whistleblowers cannot waive their rights through arbitration agreements.
  • First, for those of us who worked to shape the SEC Whistleblower rules a dozen years ago, the first “fix” is overdue—and important.
  • In early 2011, I joined a few other whistleblower advocates who met with the SEC Chair and Commissioners, and learned that business interests were lobbying hard to require that every SEC whistleblower must first report to the employer the employer’s wrongdoing.  They argued, among other things, that mandatory internal reporting would allow companies to address and resolve securities law violations, and perhaps avoid the need to report to the SEC.
  • Although many if not most whistleblowers do raise their concerns internally before filing with the SEC, we (and others) prevailed in convincing the Commissioners that requiring such internal reporting would discourage many meritorious claims because it would often be an act of “career suicide.” The SEC rules that resulted rewarded internal reporting, but did not require it.
  • In a twist, the Supreme Court’s Digital Realty decision in 2018 held that whistleblowers who reported internally–giving their organizations a chance to correct the violations—but who then faced retaliation before they could also report to the SEC—had no protections from retaliation under the 2010 legislation that created the modern SEC Whistleblower program.  The proposed Act would correct this bizarre result.
  • Second, timely processing of claims and awards is essential to incentive whistleblowers to take the inherent risks of reporting violations.  Would-be whistleblowers with the best information typically have mortgages and tuition to pay, and retaliation can occur regardless of the goal of anonymity built into the program.
  • Third, banning arbitration of claims is consistent with SEC rules that already prohibit employers from interfering with incentives to report wrongdoing.
  • Before the next banking crisis or set of corporate scandals, let’s hope Congress does what this bipartisan group of Senators advocates, and enacts the SEC Whistleblower Reform Act of 2023 .

Our firm, Finch McCranie, LLP, represents whistleblowers in the SEC Whistleblower and CFTC Whistleblower Programs, in the IRS Whistleblower Program, and in qui tam cases under the False Claims Act. To our knowledge, only our firm has a former Senior Officer of the SEC, Walter E. Jospin, in our group representing SEC whistleblowers.

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