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Thursday, February 17, 2011

SEC Whistleblower Regulation: Shooting The Mailman

Repressive regimes wishing to squash popular uprisings learn it's far more efficient to cut off the Internet (see: Eqypt) or shoot the messengers, instead of going after individual protestors. 

The same coldly efficient philosophy may be behind the movement to revise proposed new Securities and Exchange Commission regulations to force corporate whistleblowers to report suspected wrongdoing inside the company first. 

Crime, Politics and Policy's Eric Dixon was highly critical in a December 2010 comment letter to the SEC of the impact of proposed new whistleblower regulations on in-house lawyers.

(The Wall Street Journal is only noticing this issue now, but the SEC released proposed regulations in early November 2010 for public comment.  This is old news.

This sentiment works well...unless the wrongdoing is being committed by the people to whom you report.  In such a case, self-reporting may be career suicide...or worse.

Naturally, corrupt corporate managements will love a requirement for internal reporting.  They will get "tipped off" that wrongdoing has been noticed.  They will know who knows, what they know and, to some extent, can make an educated guess as to what they could say down the road as a potential witness.

Of course, with such advance warning, corrupt managers can then start secreting away -- or destroying -- evidence of wrongdoing.

No wonder large corporations are in favor of such an internal reporting requirement.

Eric Dixon is a New York lawyer.  The comments here are opinion only and do not constitute legal advice. 

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