Dave Eberhart, NewsMax
Monday, July 22, 2002

Busy enough monitoring reports from about 15,000 public companies, the post-Enron et al. SEC is also confronted with screening information streaming in via e-mail, snail mail and phone from a host of whistle-blowers eager to disclose dishonesty in the boardrooms.

Whistle-blower disclosures to the SEC doubled normal rates during congressional Enron hearings, prompting SEC enforcement chief Stephen Cutler to say, "Because of this phenomenon, among other reasons, we are learning of potential securities law violations earlier than ever before. Keep those cards and letters, not to mention e-mails, coming."

In recent Capitol Hill testimony, Tom Devine, the legal director of the Government Accountability Project, described whistle-blowers as "the lifeblood of anti-corruption campaigns, which are lifeless, empty symbols doomed to failure without testimony from those who bear witness. It is difficult to win criminal convictions without leads and testimony."

"They're [whistle-blowers] not the disgruntled employees, they are good, loyal company personnel," said Charles Niemeier of the SEC's enforcement division. "They see top management made millions of dollars not because they're geniuses but because they're willing to screw around with the numbers. … It's been a windfall for the SEC. Today we have better information than we've ever had."

Warning

All well and good, testified Devine, who warned, however, that the pipeline of information will surely dry up if whistle-blowers are not expeditiously protected under new legislation winding its way through Congress.

Congress appeared to heed the advice.

Last week, acting quickly on the heels of the Senate, the House passed a bill not only featuring enhanced jail time and fines for shredding, fraud and false financial reporting – but also further establishing the first-ever criminal penalty for companies that retaliate against whistle-blowers.

The Senate version [the Corporate Fraud and Accountability Act of 2002] says no publicly traded company "may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee. …"

President Bush has repeatedly emphasized that he wants to sign a corporate accounting law before August.

Devine agrees that time is of the essence. "Unless rights are locked in, things will soon be back to normal as would-be whistle-blowers decide instead to stay silent observers. Ironically, the norm is that whistle-blowers proceed at their own risk when sounding the alarm, except when shielded by the False Claims Act for challenging fraud in government contracts."

One of the key framers and sponsors of the Senate corporate responsibility bill, Sen. Patrick Leahy, D-Vt., has long been on the whistle-blower protection bandwagon. "We found out in the Enron case, when they were worried about a whistle-blower, they were told by their counsel, "Don't worry, you can fire such a whistle-blower because the Texas law will protect you and the Texas Supreme Court will uphold that."

University of Maryland Professor Fred Alford, author of "Whistleblowers: Broken Lives and Organizational Power," concurs, noting that under the current state of affairs the only reliable protection for the would-be whistle-blower has been notoriety and media attention:

"[F]or every Sherron Watkins [Enron whistle-blower], there are several hundred whistle-blowers that lack the protection of visibility," Alford advised.

Oft-cited examples of this fragile, informal shield: candid employees at Paine Webber, Global Crossing, and WorldCom and similar firms – some of whom were outright fired for alleged disloyalty to company managers.

California on the Move

In the meantime, some states are working to enact whistle-blower laws that make the federal versions seem anemic.

California State Sen. Martha Escutia's "Whistle-blower Act" requires corporate executives to tell the state's attorney general about accounting abuses. It also sets up a hotline for anonymous tips about corporate misbehavior and fines – as much as $100,000 – for executives who knowingly fail to report illegal business activity.

Designed to end the practice of corporate insider cover-ups, the legislation has its detractors. Opponents claim it will harm relations between co-workers and drive businesses elsewhere.

Devine and other proponents of whistle-blower protection are hopeful that the current legislative momentum, both federal and state, will carry over and revive what has been described as the "stalled" Whistleblower Protection Act for federal employees.

"That law was the strongest free speech law in history when unanimously approved by Congress in 1989 and strengthened in 1994. But after brazenly hostile activism by a court with a monopoly on judicial review, it is a trap that creates more victims than it helps," testified Devine.

"The rules have been rigged so that whistleblowers are guaranteed legal endorsement of reprisals they challenge, unless they present "irrefragable" proof of government misconduct," Devine argued. "That means undeniable, uncontestable proof, although the law as written only calls for evidence of a reasonable belief. In the absence of a confession there is no such thing as a whistleblower."

"Amazingly, the House has not even scheduled hearings on the bill," Devine added.

Further, Devine wants Congress to move to close what he perceives as loopholes in protection for those who blow the whistle to Congress, or while employed by the FBI, or as a federal baggage screener.

Sen. Joseph R. Biden, D-Del., said recently that the role of the whistle-blower reached beyond simply aiding law enforcement. "Only whistle-blowers can help us understand the culture that produces wrongful behavior. Understanding that culture is the key to fixing the problems, realizing meaningful institutional reform. In that regard, I consider whistle-blowers national assets."

Read more on this subject in related Hot Topics:
Enron
Global Crossing Scandal

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