Subject: Please Reconsider Proposed Amendments to the SEC Whistleblower Program
From: Sherron Watkins

August 15, 2019

To the SEC Chairman and Commissioners,

My name is Sherron Watkins, and I am best known as the Enron Whistleblower because I met with our CEO, Ken Lay, in August of 2001 to warn him of massive fraud at Enron.  I also contacted a mentor at Arthur Andersen, and I contemplated who I might contact at the SEC.  Although I am technically an internal whistleblower, I wanted to go outside to warn others, but lacked a clear path to make that happen.  Thanks to the bounty provisions of the Dodd-Frank law passed in 2010, that path is now clear and I am a firm believer that having that path of reporting to the SEC is essential to helping the securities industry be a safer place of investment for shareholders.

When I speak on Enron and the warning signs of a cultural rot at an organization, I now add an optimistic sign – how if Dodd-Frank had been in existence in the 90s, I would have been able to contact a law firm and report to the SEC when I was first troubled in late 1996 about two accounting treatments at Enron that became the seeds of the massive fraud to occur a few years later.  My firm belief is that by doing so, the SEC would have conducted an investigation, slapped Enron with a fine and told the company to ‘cut it out’ basically.  I’d be anonymous via my use of that law firm, Enron would still be alive today and I’d still be gainfully employed there and shareholders would not have lost $60 billion in value. 

The key to my perfect world scenario above is the bounty provisions of Dodd-Frank, which serve to attract legal talent to the cause of the whistleblower because the reward program provides the primary way that legal talent will be compensated for their work on behalf of those whistleblowers, and indirectly, their work on behalf of a healthy securities industry.  Most whistleblowers are not at a level of disposable income where large legal fees can be funded from their own pockets. 

There are two proposed amendments to your extremely successful whistleblower program (File Number S7-16-18) that, if enacted, would gut the program.  One is the proposed revision to Exchange Act Rule 21F-9(e), which puts up reporting mechanism hurdles; and the other is proposed revisions to Exchange Act Rule 21F-6, which would place an arbitrary limit on the bounty reward.  Please reject these proposed revisions.  Not only because your current whistleblower program is successful AND it does prevent future Enron’s (as I’ve outlined in my “if only” best case dream scenario from 1996), but also from a truly personal perspective. 

It is a lonely road to become a whistleblower.  Enron tried to fire me, I lost longtime friends, I’ve been ostracized and will never work in my chosen field again.  But I remain the only whistleblower with a good story – Enron imploded too fast to make their plans for me come to fruition.  I have a speaking platform and travel around the world lecturing on ethics, leadership, integrity and the warning signs of corruption.  Time magazine put me and two others on their cover as People of the Year in 2002, calling it the Year of the Whistleblower.  I have been blessed.  Not so for countless others I meet who blew the whistle at their organization and their lives have been ruined.  The bounty reward program built into the Dodd-Frank Act has attracted legal talent to the causes and support of whistleblowers and that is a god-send, both legally and emotionally.  Employees blow the whistle to stop their organizations from continuing to do harm. Monetary rewards are not at the forefront of their motivations.  However, without the monetary rewards, the playing field for speaking truth to power is not level and the powerful organization overwhelms the whistleblower every time. 

That’s why I’m writing today to urge you to reconsider proposed amendments to your extremely successful whistleblower program (File Number S7-16-18).

 Proposed revisions to Exchange Act Rule 21F-9(e) would create unrealistic reporting procedures that would disqualify a vast number of whistleblowers, simply because they reported their concerns to the wrong office at the SEC, rather than filling out a specific form and filing it according to specific reporting procedures.

Proposed revisions to Exchange Act Rule 21F-6 would also disincentivize whistleblowers from coming forward by placing an arbitrary limit on whistleblower rewards, especially in cases where the whistleblower uncovered massive frauds. Congress has rejected such arbitrary limits, but the Commission’s proposed rule would authorize these drastic reductions in the amount of rewards in major fraud cases. Rewards must be based on the level of the whistleblower’s contribution to the successful outcome of the case. They are essential in encouraging whistleblowers to step forward with high-quality information on the largest cases.

Whistleblowers have helped the Securities and Exchange Commission (SEC) recover over $1.7 billion in sanctions from wrongdoers over the past decade, including more than $901 million in disgorgement of ill-gotten gains and interest. The recently proposed amendments would be extremely detrimental to whistleblowers and undermine the success of the program.

I urge you to reconsider these proposed amendments to ensure your robust whistleblower program continues. If you have any questions about the potential impacts of these amendments or would like more information, please contact John Kostyack, Executive Director of the National Whistleblower Center.



 Sherron S Watkins