Furious Debate Over An SEC Whistleblower Program
13 CommentsBy Ed Silverman // December 23rd, 2010 // 11:38 am
Last week, some 260 companies warned the US Securities and Exchange Commission that its proposed whistleblower program, which is mandated as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, would transform financial fraud into a veritable “gold mine” for employees. The warning (see here) was contained in a letter from the Association of Corporate Counsel and signed by lawyers from Allergan, Arcadia Biosciences, GlaxoSmithKline, Pfizer and Onyx Pharmaceuticals among many others.
The law requires the SEC to pay rewards of 10 percent to 30 percent of fines and settlements extracted from enforcement actions triggered by whistleblower claims. But the ACC argues employees will be encouraged to ignore early signs of fraud and to maximize penalties and payouts. “The proposals cut to the very core of what it is that every responsible US company has been trying to do for the last couple of decades, which is to create effective, robust compliance reporting systems,” ACC senior vp Susan Hackett told The Wall Street Journal. “This just pulls the legs off the stool.”
Now, several consumer advocacy groups say the SEC program would not go far enough. In remarks filed with the agency just as the public comment period ended this week, Voices for Corporate Responsibility, The Government Accountability Project and National Employment Lawyers Association charge there would be no mechanism to track whistleblowers and their contributions during an investigation, and that whistleblowers are required to petition the SEC in order to obtain their awards but only after a successful enforcement action (read the letter).
The group also argues that “deterrence is not warranted where, by definition, securities fraud and other illegal acts occur with the knowledge and consent of corporate officers and directors.” Consequently, they contend internal compliance programs will “almost certainly fail” to effect positive change. And they worry the SEC rules do not address coordination of investigations by federal agencies - and cite numerous instances in which the US Attorney General made use of the False Claims Act to extract settlements from numerous drugmakers, including Pfizer and Eli Lilly.
“Abdicating responsibility for whistleblower complaints by passing them off to internal compliance departments is not a substitute for leveraging the resources of government agencies whose job it is to enforce fraud and other violations through coordinated investigations and prosecutions,” says Reuben Guttman, a lawyer who represents whistleblowers, such as two former Wyeth reps who charged the drugmaker targeted African-Americans with an off-label marketing campaign (read here). “Unless the SEC, Department of Justice and other agencies work together, the whistleblower provisions of Dodd-Frank will certainly fail.”
pic thx to katerha on flickr
Doc
ANY effort to require employee whistleblowers to go to internal corporate compliance departments first is wrong.
A corporation’s internal compliance department’s first loyalty is to the corporation.
Unless whistleblowers have the option to go directly to government agencies, the system is seriously compromised and the taxpayers pay the price.
Matt
The SEC should recommend Congress create a private right of action for Whistleblowers under the Foreign Corrupt Practices Act to put teeth in the new provisions.
Insider
I don’t beleive anything these corporate compliance officers say. THe only thing I have seen is they are in it to cover it up not to clean it up.
That is a Joke to say these compliance departments are trying to clean it up. It would not be happening if they had not let management get cleanly away with all the fraud and continue their careers. If upper level management is invovled then the compliance officers have no power to do their job.
WHistle blowers do not have an easy time of it even if they know exactly what they are talking about and have all the documents. I agree with Rueben, they need to tighten it up a bit and work closer together.
Former Pharma
Get an ethical lawyer - don’t ever report via company channels. In no way shape or form is it confidential and you will suffer!
Insider
I think you are exactly correct. If you read the 13 Pfizer cases released by the Justice Department, you will be convinced the Former Pharma fellow knows exactly what he is talking about. FOr them to state No Pfizer reps make false statements to physicians is incredible garbage. PHysicians were confronting reps on their off-label details and receiving copies of published research marked not to be shown to a Physicain. You would think the rep would at least remove that information. When other reps turned them in nothing happened to the reps who mailed the literature only the reps that turned the literature in. Go figure for follwing company policy. It appears the whistle blowers were the only ones obligated to follow company policy.
PharmaSpy
First of all, you should ALWAYS remain anonymous when whistleblowing. I don’t even tell my family. Here are the steps to follow:
1) Report to compliance website.
2) Wait one to four weeks for a reply.
3) Consult a Qui Tam lawyer.
4) If #3 is not feasible, go to the media.
Usually #4 is the only thing that gets a company’s attention.
Searching2000
While he did not choose to comment on this post, if you have not read the comments by NJLawyer to the most recent former GSK counsel story, I think they are equally germane here.
If you care to see then:
http://www.pharmalot.com/2010/12/former-glaxo-lawyer-points-finger-at-big-law-firm/#comments
NJLawyer
Searching2000 -
Thank you for the mention and nudge, so I’ll reiterate here what I have previously posted:
Having represented corporations, and been in-house compliance officer, and currently devoting a substantial portion of my practice to representing whistleblowers, I have a slightly more nuanced approach to blowing the whistle.
Before deciding whether to use internal reporting mechanisms, the employee needs to ask a series of questions.
First, does the employee believe that management generally has an ethical compass and will do the right thing if put on notice?
Second, does the compliance function have sufficient neutrality and authority that, if the complaint is legitimate, meaningful change can be effected, or is compliance regarded as the cops and enforcement arm of management to make sure only that sales reps and other lower level employees are following rules?
Third, did senior management approve the decision that is at issue or otherwise has a vested interest in maintaining status quo?
Fourth, is the decision-maker/bad actor protected by senior management?
Fifth, is the complainant already on the outs with management (such that the company may regard the complaint as nothing but an attempt to salvage the complainant’s employment or to create mischief or get their boss in trouble)?
Sixth, is there a confidential reporting mechanism, and does the employee believe that his or her identity will remain anonymous?
Depending on the answers to these questions, the employee may feel comfortable at trying to resolve the problem internally, or may rightfully be concerned that nothing will be done and that he or she may be subject to retaliation.
Employees should also be aware that, in addition to qui tam actions, employment-related statutes may provide some recourse(for example, New Jersey prohbits retaliation against an employee for objecting to conduct that the employee reasonably believes is in violation of law or public policy, or is fraudulent).
Anon
To whom it may concern: Dig into Schering-Plough activities prior to the acquisition by Merck! Oh, the things you’ll find under that executive regime!!
PharmaSpy
In my experience, the following usually applies to PHARMA:
1) The source of unethical behavior comes from management.
2) There is a compliance double standard, the higher up you go the less it applies.
3) Senior management prefers “plausible deniability” and will let underlings take the hit if caught.
4) Those protected by senior management can be brought down, it just takes more evidence.
5)One of the first moves by management is to paint the whistleblower a trouble maker, malcontent, misfit etc. SOP.
6)Anonymous is always the way to go. There is NO UPSIDE to going public.
Ken
It is amazing to hear that 260 company executives are worried about SEC Whistleblower Program because it will “transform financial fraud into a veritable “gold mine” for employees”. Only reason
I feel they say that is because it will impact their own “GOLD MINE” through financial fraud. ALL previous defrauders have lavish home in Florida and have paid less than 10% in fines and less than 30% including lawyer fees from money they gained fraudulently.
Dr. Kingsberg
Happy Holiday!
Basel lair
Here is a real life example: Novartis has the usual Codes of conduct designed for public and gov’t consumption.Whistelblowing is encouraged in fact demanded by employees who know the “stuff”.They are “assured” protection.One misguided person blew the whistle on major “misconduct” by one affiliate located outside Switzerland that included everything from offlabel to bribery. The employee was quickly thrown out, the case was covered up internally, all involved were kept, some promoted. The new improved “stuff” was designed and put to use. Even their top exec. Dr. D.V was aware of the case and approved its handling. He even admitted that whistleblower did a huge favour to the Co worldvide for the changes that were made to the “stuff” made the Co more secure in using the misconduct as tool of their biz. This case took place some time after the PA state started their case against Novartis in USA (fined $422M). Since that case Novartis is pretty sure no new cases would be uncovered. Yes will not be uncovered which means they are taking place for new rules of the cover up are though airtight. We’ll see.