December 17, 2010
As a private citizen, lawyer, and securities fraud litigator who often comes in contact with former employees and witnesses to securities fraud, I am deeply concerned and object to certain of the provisions of the proposed Whistleblower regulations. While I am generally concerned that the regulations (1)raise many barriers to deter whistleblowers from coming forward, (2) have limited practical usefulness in the anti-retaliation provisions of the statute, especially with regard to former employees or non-employees, and (3)lack of transparency as to the ultimate amount of an award that a whistleblower might expect, I raise only two issues below. Both issues deal with the required standing or elgibility requirements.
First, there appears to be little justification to limiting whistleblowers to natural persons. The statute recognizes that a whistleblower may be "2 or more individuals acting jointly". Our laws recognize many forms of organization of persons acting jointly...partnerships and corporations. Nothing in the legislation limits the manner or form by which the individuals could be acting jointly.
This limitation would also preclude persons from establishing a partnership to investigate and come up with information leading to a potential violation.
More important, it would preclude an innocent corporate or partnership employer from using information gained by one of its employees in the course of that employees duties from filing a whistleblower report with the SEC. Thus, for example, a bank employee learns of the scheme of one of its customers in the course of his our her employment. The employee brings it to his or her boss. Because the bank is not involved it has no duty to report the violation. But if the bank could recieve an award, there may in fact be a duty to the bank and its shareholders to file the report with the SEC to pursue an award.
Second,in response to Request for Comment 34, the requirement that an attorney for an anonymous whistleblower certify that he or she has verified the whisleblowers identity is inapproprate for two reasons.
Most importantly it is inappropriate because it requires the whistleblower to have a "valid, unexpired government issued identification." Like the inappropriate requirement that the whistleblower be a natural person, there is no requirement in the statute that the whistleblower have some sort of government ID. The whistleblower should be allowed to be anyone including illegal aliens, foreigners without ID's, or persons without current ID's. Often, it is the disenfranchised person who is willing to risk coming forward to report a violation.
It is also inappropriate to require such an inspection by the attorney. It is not a requirement of representation in any state or court in this country that an attorney inspect the documentation and verify the identity of his or her client, absent suspicion or red flags that the client is someone other than he or she claims to be. Attorneys should also not be put in the position of acting as some sort of quasi-law enforcement official who may be percieved as threatening to the a potential whistlblower who may fear that the attorney will out the whistleblowers possible illegal status in the country or elsewhere. While I have not tried to put this into a constitutional box, I suspect that the requirement could be challenged constitutionally and should be reviewed in that context.
Finally, from the standpoint of encouraging whistleblowers to come forward, such a requirement of inspection, in my experience, would likely scare the whistleblower away. My experience with whistleblowers is that, unless they have some overriding grudge against the violator, they come forward timidly and are easily frightened away. They may have one contact or two contacts with you before they back away. These are valuable reports and the SEC should want them with as little red tape as possible.