February 22, 2011
Perspective: A securities lawyer with over 30 years of experience and in-depth experience in SOX 806 whistleblower litigation. Certified Fraud Examiner and Certified Controls Specialist.
By another person: We have represented several internal auditors who have been forced to approve questionable practices or lose their job. They are not allowed the time or documents to determine whether their belief that the company is covering up securities fraud is well founded. Sometimes, when they pass an internal control after being harangued by their supervisor, they call our office to see if they have any rights. Under the proposed rule, the company will argue they have participated in the fraud by passing the controls. We believe scienter, instigator, engages in culpable conduct or some similar test would be more appropriate. The reality is that the whistleblower is usually a member of a department which is covering up the fraud and may not know of the violation or have the courage to risk their job by blowing the whistle until a later time. Corporations with fraud in the closet do not allow access to the closet to those who they think might blow the whistle. The current rule takes the nave position that corporations will allow non-participant observers access to the hidden fraud. Public policy should encourage those with access to the fraud to find the courage to risk their careers and report the illegal activity. The reality is that the whistleblower will have ruined her career by informing the SEC regardless of the provisions of the statute. In reality, they are faced with the choice of trading their career for whistleblower compensation. The current provision will discourage those who have marginally participated from blowing the whistle and thereby unnecessarily reduce the number of quality reportsto the SEC.