Drugmakers, Whistleblowers And The SEC
7 CommentsBy Ed Silverman // November 3rd, 2010 // 7:56 am
A whistleblower program that Congress ordered the US Securities and Exchange Commission to establish has some drugmakers very upset. The effort was mandated as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and final rules are expected to go into effect sometime next spring. And so some drugmakers instructed their law firms to write the agency with proposals that would involve restrictions and then participated in a closed-door meeting with the SEC last week to review their suggestions.
Among those in attendance: Gary Fair, Johnson & Johnson’s vp for corporate internal audit; Tara Gabbai, Pfizer’s assistant general counsel, and Ed Nowicki, Pfizer’s assistant general counsel for corporate compliance. Both drugmakers, you may recall, have tangled with whistleblowers in the past and paid the price (see here, here and here). Others at the table were JPMorgan Chase, Prudential, Citigroup, Tyco, Kraft Foods and the Gibson Dunn & Crutcher law firm (here is the list).
Which restrictions were proposed? They want the SEC whistleblower program (see the most recent report here) to require employees to first follow a company’s internal whistleblower procedures before making a claim with the SEC. “We have serious concerns that the avoidance of internal whistleblower procedures in response to the carrot of whistleblower awards will not only prevent companies from taking their own remedial actions, but will also prevent companies from self-reporting and realizing the benefits of self-reporting under federal sentencing guidelines,” wrote the Baker Donelson law firm in this letter to the SEC.
Another suggestion: the SEC should limit fees that can be paid attorneys who represent whistleblowers in order to avoid frivolous claims. And the Arent Fox law firm, whose clients include Novavax, Genzyme and Elan, wrote the SEC in this letter that the agency should refuse to accept tips from employees with a “fiduciary responsibility,” such as senior execs and directors.
Stephen Kohn, the executive director of the National Whistleblowers Center, who wrote his own letter to the SEC, says the opposition to the program is not surprising. “What’s shocking is that these companies have compliaznce programs and none of them worked,” he tells us. “And they want employees to go to internal pograms first - it makes no sense. These are failed managers…And so they all have an intereste in making sure Dodd-Frank does not work. They’ve had experience with the False Claims Act and it permitted whistleblowers to go to law enforcmenet and turn them in for illegal activites.”
“We strongly believe and support internal complicance, but it’s not a substitute for not being able to go to the SEC,” he continues. “We want them to adopt rules for internal compliance programs that are consistant with rules for internal procurement - if they do any government business, they have to have a compliance office that adheres to minimal standards…The key issue is to make internal compliance programs work so employees use them, not to punish emloyess for going to government agencies…And this way shareholders can benefit, too.”
pic thx to katerha on flickr
PBurns
Headline: The fox in the hen houses wants the farmer to be blind, deaf and replace his shotgun with a water pistol.
On the upside, we now know who has the most to fear from the SEC! ;-)
Compliance programs? Most of these firms hire COMPLIANT officers, not compliance officers.
The job of the “compliance” officer in most companies is to identify any “problem” employee who has questions about fraud or malfeasance, and scoot them out the door as quickly as possible.
Here’s a question: Name one firm that promoted an internal whistleblower or made them employee of the week, much less employee of the year?
Every single one of these firms has a track record of doing three things with internal whistleblowers: isolating them, humiliating them, and terminating them. Whole books and a million newspapers articles detail their histories here. I suspect the SEC can see past this nonsense-on-stilts. I know Congress and the American people sure can. It is laughable.
shytown
Mr Burns hit the nail on the head!
The ONLY reason they want internal channels used first is so they can weed out the guy/gal who is not towing the company line.
Having gone through it myself, It’s not laughable, I see their suggestions as down-right insulting.
Teflon no more
That is the key reason. Once they find out internally who knows what by their whistleblowing internally, they can cover it up and it goes no further. The WBer usually is gone sooner or later. For instance Novartis has their Codes of conduct that insist any employee must WHblow on anyone if they know something is going wrong.They offer “protection” to the WBer but in reality the WBer is doomed, once they have all the evidence in their hands.This company has a what they call BPO (business practices office) that deals with such issues. They are like security for the company and their main goal is to protect the co from any harm internal or external. The real truth is that this Co. as a whole operates as, at least semi-illegal entity where use of illegal practices to enhance their returns is allowed and encouraged. This is done by combining both legal and illegal which brings in far better returns than using only legal. Lok at their recent fine of $422M for illegal promotion of several drugs. That was done with plan and authorazation by the very top. If the WBers did not go outside the Co but reported it only internally, the whole thing would have been covered up. Those 4 WBers did the right thing and will never need work in bigpharma and US gov’t got some of the money defrauded by this Co. As for Novartis and all others who were fined, don’t feel sorry for them. They are still ahead. That is why they still do it and will.
Anne PME
In the Madoff whistleblower book it says that under the old SEC WB regs, criminal conduct does not apply so only civil WB violations can be filed. Does anyone know if the new WB regulations cover both criminal and civil violations or only civil violations?
Chris
If you have evidence of fraudulent practices, don’t bother going to your manager as you will be shown the door as soon as they extinguish your info.
Check out your rights at http://www.whistleblowercenter.com
You can save your country some money and get a huge reward in the process (for now at least).
Tom
One of the companies and following the internal path, result…. My rep in tatters and my contract cancelled plus all offers of future contracts withdrawn. Main retaliation performed by a senior member of staff who then received two massive promotions and a slap on his back.
I followed the internal process and I was not a Senior exec or director but most of these guys and gals are now closing their eyes to the mess that is left.
Unfortunately for me the biggest institutional investor also wrote a letter asking what the hell was going on so the repsonse was threaten me with legal action on two counts……….Now I am waiting for the second year of the SEC and IRS. The European tax offices all protect the confidentiality of the company but they all want the detail.
Would I ever do it again…………NO NO NO NO NO NO.
Tom
Chris
Just correct your comment…. I have contacted your website link and received ZERO RESPONSE.
I have written to them for help on three occassions without a singlke response or read reply to my emails.