August 5, 2010
The Whistleblower Award program creates serious conflict of interest problems and should be modified. Most companies have: (1) policies that require an employee to notify their employer of illegal acts, (2) a hotline for anonymous reporting of same, and (3) policies regarding conflicts of interest which require disclosure and transparency.
By encouraging employees to provide the government with such information, rather than contact the appropriate reporting person within the company, the government would be rewarding employees for circumventing the very reporting system that the SEC and other government regulations require companies to adopt
At a minimum, the Whistleblower Award should not be made available to individuals who fail to report illegal activities first to their employer, so that the appropriate action can be taken by the company. The Whistleblower Award encourages employees to violate company conflict of interest policy by not reporting such information to the company but rather taking such information directly to the government in hopes of collecting this bounty.
Furthermore, most companies require disclosure statements from key management employees on a regular basis. These disclosures ask for confirmation that the employee is not aware of any violations of company policy, or if they are, to list such violations. Individuals who certify that they do not know of such information, but later provide that information directly to the government, should not be permitted to personally profit from making false statements to the company.
Finally, we should not lose sight of the ultimate purpose of the laws and regulations, which is that companies conduct their business in accordance with the law. The law should encourage reporting to the companies first - they are the ones in the best position to take appropriate action.