Whistleblower Protection Blog : Whistleblower Lawyer & Attorney : National Whistleblower Legal Defense and Education Fund : Whistleblower Protection, Fraud Claims : Washington DC

Updated May 15, 2012, with an eighth way the Grimm Act would undermine the corporate whistleblower program.

Corporate criminals rejoice. The Grimm Act packs seven deadly punches for whistleblowers. This law would make it more difficult for employees to report Wall Street corruption, Ponzi schemes, and other fraud – not easier. What happened to Congress fighting fraud?

The leadership in the House of Representatives is positioning the Grimm Act (H.R. 2483) to move quickly through Congress. It’s a license to steal for Wall Street and big corporations. Here’s how:

1. Gag Orders Legalized

The Grimm Act permits companies to enforce, “any established employment agreements, workplace policies, or codes of conduct,” regardless of the impact on the right of an employee to report corporate crimes. This means that companies can force employees to sign agreements forfeiting their whistleblower rights.

2. Workplace Retaliation Legalized

“Any adverse action taken against a whistleblower for any violation of such agreements, policies, or codes shall not constitute retaliation.” It looks like retaliation, smells like retaliation, but it’s not retaliation. (Emphasis added to the bill text.)

3. Law Enforcement Crippled

The Grimm Act requires the SEC to, “promptly notify any entity that is to be subject to [an investigation]” before beginning an investigation. Tipping off companies suspected of violating the law allows the corporations to intimidate witnesses and tamper with evidence before the investigation begins.

4. Whistleblower Anonymity Destroyed

The Grimm Act allows, and in most cases requires, the SEC to, “disclose to the employer’s audit committee such information provided by the whistleblower.” This means that the SEC would not only be unable to guarantee confidentiality, but it would be required to turn whistleblowers over to the very corporations accused of wrongdoing.

5. Corporate Accountability Minimized

The Dodd-Frank Act provides incentives for companies to self-report violations, including reduced fines and penalties. The Grimm Act creates a gaping loophole, allowing companies to claim they self-reported even when a whistleblower makes a report to the SEC. This applies even if the company initially covered up problems and retaliated against the whistleblower.

6. Most Whistleblowers Disqualified

People found guilty of fraud are reasonably excluded from obtaining the benefits of the new SEC whistleblower program. However, the Grimm Act disqualifies employees who in any way “participated in” a violation. This subtle-but-deliberate disqualification in the Grimm Act would cut out the vast majority of whistleblowers from protection, as almost every whistleblower “participates” in the violations they uncover. Think of all the low- and mid-level employee¬s, such as secretaries who take phone calls and clerks who make photocopies. These people are “participating” in violations, and are therefore disqualified from the whistleblower program.

7. Awards Program Broken

The Grimm Act makes whistleblower awards discretionary, returning the SEC whistleblower program to its pre-Dodd Frank Act status. That version of the program was completely discredited by a 2010 report by the SEC Inspector General. The report showed that the SEC helped only five people and awarded only $159,537 during 20 years of operating a discretionary program. The report lamented that the discretionary program was, “not fundamentally well-designed to be successful,” and made recommendations that were implemented by the Dodd-Frank Act. The Grimm Act turns back the clock.

8. Justice Obstructed

The Grimm Act requires employees to make reports about their bosses to their bosses before going to law enforcement. As it turns out, this is the definition of obstruction of justice, a crime that packs a severe punishment. The federal obstruction of justice statute calls for prison sentences of up to 20 years for those who, bear with me now, "hinder, delay, or prevent the communication to a law enforcement officer or judge of the United States of information relating to the commission or possible commission of a Federal offense." Yes, laws are a bit wordy, but there's not much wiggle room here. The Grimm Act undermines the fundamental right for citizens to report wrongdoing to law enforcement. It's an obstruction of justice.

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If you want your Member of Congress to fight fraud and protect your investments, take action and ask them to oppose Wall Street’s license to steal. Share your thoughts about the Grimm Act in the comments.

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California Assemblyman Anthony Portantino (pictured; D-La Cañada Flintridge) has won committee approval for his bill to give employees in the Legislature the same protections afforded to other state workers when they report waste, fraud and abuse. Assembly Bill 1378 will give legislators and their employees protection from retaliation for reporting "improper governmental activity." The bill provides criminal and civil liability for violations. In a recent amendment, the bill limits the right to pursue civil remedies to employees, not legislators themselves. The Sacramento Bee reports that Assemblyman Portantino suffered retaliation himself after we was the lone Democrat to vote against a budget bill.  The Speaker slashed the budget for his office staff. Thus, when Assemblyman Portantino agreed to the amendment to limit civil claims to employees only, he was giving up his own rights for the sake of his employees. The outcome: a committee vote on January 10 with 10 votes in favor and no opposition. Congratulations!

UPDATE:  On January 19, 2012, the Sacramento Bee reported that A.B. 1378 died in the Assembly's Appropriations Committee. The bill did not get the required motion and second required for consideration. The State Auditor said that the bill would cost about $400,000 a year, and would put the Auditor's office in the position of investigating its own "client." It is hard to see how the anti-retaliation provision would interfere with the "independence" of her office. And if the anti-retaliation provision ends up costing the State money, it would probably be a result of liability for actual retaliation -- showing that there is a problem to be addressed. It is not unheard of, though, for a bill for transparency and against corruption and retaliation, gets buried through a procedure that does not require legislators to generate a record of who voted yes and who voted no.  Hopefully, California voters will call on members of the Appropriations Committee to explain why they did not make the required motion and second to advance A.B. 1378.

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Just before last night's deadline, I submitted comments on modifications to the Department of Labor's regulations for corporate fraud whistleblowers. The Occupational Safety and Health Administration (OSHA) originally issued regulations at 29 CFR Part 1980 to govern its whistleblower program under the 2002 Sarbanes-Oxley Act (SOX). The modifications OSHA published on November 3, 2011, reflect changes made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and also make some policy changes. I made my comments on behalf of the National Whistleblowers Center (NWC) with helpful input from NWC Executive Director Stephen M. Kohn (especially on the issues of extraterritoriality and confidentiality).  My colleague Erik Snyder helped me finish the comments in time for last night's deadline.

OSHA's modifications reflect the new expanded time limit for filing retaliation claims. Section 922(c) of Dodd-Frank extended the statutory filing period for SOX retaliation complaints from 90 to 180 days. 29 CFR § 1980.103(d) now requires claims to be filed within 180 days of the date on which the employee became aware of the violation. Section 922(c) also protects the whistleblower's right to a trial by jury in cases where the employee removes a case to U.S. district court. Section 922(c) invalidates pre-dispute arbitration agreements that would keep whistleblowers from using the Department of Labor process or the "kickout" provision for going to U.S. district court. Section 922(b) of Dodd-Frank expaned SOX's coverage to include employees of nationally recognized statistical rating organizations (as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c). My colleague Lindsey Williams, Advocacy Director of NWC, reported on these changes when Dodd-Frank passed in 2010.

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