October 11, 2010
Re: Section 919D--Ombudsman
I would like to comment on Section 919D of the Dodd-Frank Wall Street Reform and Consumer Protection Act from the perspective of a lawyer in private practice who has represented ombudsman programs at major corporations, universities, and other institutions for over twenty years. I am also the author of a book published earlier this year by the American Bar Association on ombudsman programs and legal issues, The Organizational Ombudsman: Origins, Roles, and Operations--a Legal Guide, as well as other articles on ombudsman programs, one of which I attach below.
There are different types of ombudsman models, with correspondingly different roles and responsibilities. I believe that the organizational ombudsman model, however, is the best approach to implement the purposes of Section 919D to "safeguard" the confidentiality of communications between retail investors and the ombudman.
An organizational ombudsman is an independent, neutral, and confidential resource to provide information and guidance to people on how to report issues or resolve disputes. It is an alternate avenue for communication and is not itself the reporting channel. Confidentiality is the defining characteristic of the organizational ombudsman. This confidentiality is important because many people need to have a confidential conversation before they are willing to report or come forward with an issue. They may just need or want information but do not know where to go or do not want to ask for it from an official source. They may also want to better understand the process or know what will likely happen if they do come forward. I review in my book a great deal of data on why reporting channels such as compliance officers and hotlines, as well as whistleblower laws and policies, though necessary and important, are not enough to encourage some people to raise their concerns. The data on whistleblowers is particularly problematic because of the widespread perception (sometimes supported in fact) that whistleblowers generally suffer adverse consequences. The findings in a recent article in the New England Journal of Medicine on successful False Claims Act whistleblowers, a copy of which is attached, is consistent with the data I reviewed on the plight of whistleblowers. Consequently, in addition to looking for ways to protect whistleblowers, a more fundamental question should also be asked: how can issues be raised without someone having to be the whistleblower. An organizational combudsman can be a important component in a system that addresses this concern.
I urge the Investor Advocate to research the ombudsman issue carefully and to structure the ombudsman role in a way that permits it to serve as a confidential resource for retail investors to obtain information and guidance on how to resolve disputes with regulators or raise questions about compliance with securities laws.