The Sky Has Not Yet Fallen
(The First Seven Months of the SEC Dodd Frank Whistleblower Program)
By Guest Columnist: Donna Boehme
Principal at Compliance Strategists LLC and editor of the weekly CS Newsflash
So far, the sky has not fallen. That’s not to say there isn’t some curious weather activity.
Now that the SEC has logged at least seven full months of the Dodd Frank whistleblower program, it’s worth taking a moment for a brief status check on what we have learned so far. To do that we might consider two available clues: a public comment from an SEC official and the fate of a GE whistleblower who is suing the company for retaliation.
First, the SEC. Recently Sean McKessy, head of the new SEC whistleblower program, commented about the 2000 tips returned to date: "I'd be hard pressed to think of one where it was a true insider tip that was not reported to anyone else." That little nugget pretty much validates the results of the National Whistleblowers Center qui tam study that found nearly 90% of qui tam plaintiffs attempted to report their concerns either to their supervisors or compliance departments, before going to the government. This mirrors the anecdotal stories from advocates who say that by the time most whistleblowers come forward, they have already tried to report their concerns internally, not once, but three, four, nine times, and have been kicked in the shins (or far worse) for their troubles.
For context, the NWC had submitted the qui tam study to the SEC in December 2010 during the heated debate about the proposed whistleblower rules (which did not require reporters to raise their concerns internally first). At the time, the Chamber of Commerce and a list of big name companies, GE included, had vigorously argued that allowing whistleblowers to go directly to the SEC was a very bad, no good, terrible idea, because of the undermining impact it would have on internal compliance programs.
The alarmists feared that the rules would create an army of mercenary employees, lured by the promise of big bounties, to bypass internal reporting systems. A few commentators (myself included) wrote back then that the “the sky is falling” approach was probably hyperbolic. The SEC did the wise thing and declared that whistleblowers would be protected and potentially rewarded for raising their concerns through any channels – internal or external. And so far, it seems the flood of internal bounty hunters hasn’t exactly materialized. Based upon Mr. McKessy’s comment, it appears that Dodd-Frank whistleblowers actually do try to report internally first. Where it gets interesting is what often happens to them when they do that.
Enter the case of GE’s former Iraq country head, Khaled Asadi, who in the summer of 2010 reported to his supervisor that GE officials had hired an Iraqi official’s relative (“to curry favor” during an electrical bid process), as a potential FCPA violation. In fact, Mr. Asadi did what the entire Chamber of Commerce posse (and presumably the GE Code of Conduct) wanted him to do - he reported internally. So it’s all good, right? Well, not exactly. Mr. Asadi has filed a retaliation suit against GE, seeking Dodd Frank whistleblower protections, because evidently, GE did not care much for the internal report, thank you very much. Mr. Asadi says that after filing his complaint with the GE ombudsperson, he was “pressured to step down” from a role he held since 2006, given an "extremely negative and troubling performance review," and then fired - all before he even thought to proceed with the next step of reporting to the SEC.
So what’s the message here? The story is still unfolding but this much I know: it is a cold, cruel, perilous world out there for internal whistleblowers. And my hypocrisy radar is starting to beep. Because after all those loud complaints about Dodd Frank’s direct line to the SEC causing compliance programs across the land to blow up, GE now says Mr. Asadi should not get whistleblower protections because – wait for it – he didn’t file with the SEC. Oh, okay. Looks like that internal reporting thing didn’t turn out so well for Mr. Asadi.
Here are my takeaways so far, after 7 months of the controversial Dodd Frank whistleblower rules. First, as the NWC contends, most employees still report perceived misconduct internally, driven more by a sense of “outrage” than mercenary dreams of a bounty*. Second, some companies have taken the wrong message from Dodd-Frank. Instead of stepping up their programs to bolster management culture and encourage employees to speak up, they’ve gone the opposite way. They are setting up a siege mentality and waging war on whistleblowers. They have let the litigation defense interests of the General Counsel trump the value to the company (and the corporate culture) of the free flow of information. This course is not only ill-advised and illegal – it’s appallingly bad self-governance. But I’m ever the optimist. As the SEC unveils some of its more high-profile Section 922 cases, I’m hoping more companies will decide to travel the right road. It is time for them to finally fix what’s broken in their culture and encourage, rather than punish, participation in their internal reporting systems.
*But see my column on the BNY Mellon/State Street cases organized by Harry Markopolos here.
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I'm with GE and it's unfortunate that we were not contacted prior to publication of this story. Regarding the author's reference to a case involving a former GE employee in Iraq, Mr. Asadi's termination had absolutely nothing to do with any allegations he is making. And GE has filed a motion to dismiss his lawsuit. Regarding our contracts in Iraq, GE followed all requirements and his allegations are false.
Sean Gannon, GE Energy
While we are happy to have this blog represent the full spectrum of viewpoints on important whistleblower issues, I must respond to GE's claims.
First, while we did not ask GE for a response specifically addressing Donna Boehme's article, I did look up the motion GE's attorneys filed on behalf of GE in Asadi's case. As we had the full text of the arguments GE was making to the court, and as Boehme's article addresses those public comments, I still feel it was appropriate to post her article and that GE's public statements were fairly represented.
Second, I remain deeply disturbed that GE's attorneys have misstated what is clear in the plain text of the Sarbanes-Oxley Act (SOX). Here is how GE's motion to dismiss at page 4 summarized its argument about the law (referring to SOX as "Dodd-Frank" which amended the whistleblower protection in SOX in ways that do not affect this argument):
"Dodd-Frank’s anti-retaliation provision explicitly covers only those individuals who report securities law violations to the SEC. Furthermore, the subsection of the statute that he contends immunizes him from adverse employment action extends only to individuals who initiate or assist the SEC in an action or investigation. Yet Asadi does not allege that he made a report to the SEC or that he had a role in any SEC proceeding; indeed, he alleges no involvement or interaction with the SEC at all. By his own pleading, Asadi asserts only that he reported his supposed concerns to his supervisor and GE Energy’s ombudsperson. As a result, he is not a “whistleblower” as Dodd-Frank defines that term, and he has not engaged in the conduct that he alleges is protected by Dodd-Frank."
SOX actually protects internal whistleblowing explicitly. It is unprofessional of GE to make a selective quote from the text of SOX and ignore the part that protects disclosures to "a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct.)" 18 U.S.C. § 1514A(a)(1)(C). Even in laws without this explicit language, the Fifth Circuit U.S. Court of Appeals has recognized that whistleblower laws protect those who raise concerns within their own employer's organization. Willy v. Administrative Review Bd., 423 F.3d 483, 489, n. 11 (5th Cir. 2005).
Asadi's attorney, Ronald Dupree, of Houston, Texas, informed the court of the correct language of SOX. See pages 9-12 of his reply. Hopefully, the court will also check the text of SOX and see that one side is telling the truth about the law.
Third, since GE's representative contacted us, I invited that representative to state what GE's real reason was for terminating Asadi's employment. With that invitation, I informed the representative that when a company denies that it acted for an illegal reason, but fails to explain its real reason, I consider that an indicator that the unlawful reason is the real reason. Even with this invitation and explanation, GE declines to state what it claims is the real reason for firing Asadi. By stalling in their statement of what they claim is the real reason, GE gets to continue collecting information to help it determine which reason is most viable. The truth seeking process is hampered by GE's refusal to be open and upfront.
Finally, GE does not respond to the main point of Boehme's article. Regardless of whether GE has a good reason or an illegal reason for firing Asadi, its argument that SOX does not protect internal whistleblowing is destructive of the very process of operating internal compliance programs. How are corporate compliance officials supposed to learn what their own employees know if GE's argument is that it can fire those workers who go to corporate compliance, but not those who go to the SEC? Boehme makes a strong case for separating corporate compliance programs from the general counsels who defend company management. She also makes a good case for assuring that whistleblowers have the same strong protections against retaliation no matter what lawful channels they use to raise their concerns.
Sean Gannon from GE, just to correct a few factual errors in the preceding post:
The reason GE’s motion to dismiss is based on the Dodd-Frank provision is that Mr. Asadi brought a Dodd-Frank claim. We did not ignore SOX, the plaintiff and his attorney did not allege it.
Regarding his termination, it is GE’s policy not to discuss private employment matters, primarily for the protection of the reputation of the employee in question. If the court permits the case to proceed, the reasons for Mr. Asadi's termination will be disclosed in the court case at the appropriate time.
One final thought from the GE side: We have a long track record of upholding the highest standards in open reporting. We believe legitimate whistleblowers deserve to have their claims treated with respect and investigated vigorously. We also believe individuals who concoct retaliation claims to advance their personal agendas ultimately do a huge disservice to open reporting and people who are legitimately raising valid concerns.
There are two sides to every story. Under court procedures, GE hasn’t yet had the chance to tell its side. People should avoid jumping to conclusions before the facts are in.
The author responds to GE post: A reminder that this piece is a guest column expressing a view based upon facts in the public arena, reported in the Wall Street Journal (“GE: You’re Not a Whistleblower If You Don’t Go To The SEC(original title),” March 7, 2012) http://blogs.wsj.com/corruption-currents/2012/03/07/ge-youre-not-a-whistleblower-if-you-dont-go-to-the-sec/, Forbes, and other business publications including a number of blogs citing to these stories http://www.huffingtonpost.com/2012/02/08/general-electric-whistleblower_n_1262207.html , http://www.newyorksecuritieslawblog.com/2012/02/ge-whistleblower-cites-companys-potential-bribery-in-iraq.shtml http://globalcompactcompliance.blogspot.com/2012/02/general-electric-whistleblower-says-he.html http://employmentlawgroupblog.com/2012/02/17/former-executive-alleges-that-ge-retaliated-against-him-for-objecting-to-company%E2%80%99s-efforts-to-influence-iraqi-officials/ . The legal filings are publicly available here. http://www.scribd.com/doc/80944442/Asadi-v-GE. The column does not involve any original “reporting.” It expressly states that the case is still unfolding, and gives an opinion on what the reported facts say about the state of Dodd-Frank implementation so far. If any of the facts reported by the media I cited are not correct, I urge GE to contact the original publications and I would, of course, be interested to hear about any corrections.
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