SNITCHING on your bosses’ dodgy doings has never been
more rewarding. In May America’s Securities and Exchange
Commission (SEC) announced a programme to
make payments to whistleblowers whose tip-offs lead
to their employers being fined $1m or more. The SEC was
given the powers to set up the scheme under the
Dodd-Frank financial-reform law, passed in the wake of
the credit crunch. An earlier post-crisis law,
Sarbanes-Oxley, passed in 2002 after accounting scandals
at Enron and other big companies, included legal
protections for individuals who speak out about
corporate wrongdoing. But a recent court appeal raises
doubts about how much protection whistleblowers can
count on.
Nicholas Tides and Matthew Neumann, both internal
auditors at Boeing, were sacked for talking to a
reporter from the Seattle
Post-Intelligencer about their concerns over the
planemaker’s internal controls. The two men said they
had gone to the newspaper after they had raised their
worries with their bosses 27 times but had been ignored.
They sued their former employer, claiming protection
under Sarbanes-Oxley, but the district court and, in
May, a federal appeals court
ruled that Boeing did have the right to fire
them.
Lawyers for the two auditors had argued that
disclosures made “through” the news media were a means
to “cause information to be provided” to federal
regulators, law-enforcers or Congress. Boeing’s lawyers
argued that the sacked men had made a disclosure “to”
the press, whereas Sarbanes-Oxley only protects people
who report their suspicions directly to the relevant
authorities. The judges found Boeing’s arguments the
more convincing.
The whistleblowers’ lawyer, John Tollefsen, is now
seeking to rally support from federal agencies, with a
view to persuading the Supreme Court to take up the
case. He argues that the news media play an important
role of amplifying the sound of the whistle for those
who most need to hear it—investors as well as
enforcement authorities.
Boeing argued during the court hearings that
journalists lack expertise to understand complex
financial and accounting issues, are “completely
unaccountable to the public or shareholders” and cannot
obtain complete information, unlike enforcement
agencies. However, such agencies sometimes fail to act
on complaints promptly or thoroughly, and it takes
pressure from the news media to jolt them into action.
In the Enron affair, newspaper reports questioning the
energy conglomerate’s accounting practices helped spur
the SEC to launch its inquiry. Harry Markopolos, an
accountant, spent years unsuccessfully trying to get the
SEC to investigate Bernie Madoff, whose massive Ponzi
scheme only came to light after journalists started
writing about Mr Markopolos’s suspicions. A study by the
University of Chicago found that the news media
uncovered more than 15% of corporate-fraud cases in
America, whereas regulators, government agencies and
self-regulatory bodies unearthed slightly fewer, 14%.
The protections introduced in the Sarbanes-Oxley act
have led to a lot of whistleblower cases being brought.
The Occupational Safety and Health Administration, a
federal regulator, says it has so far received 1,850
whistleblower complaints under the law, though only 317
of these resulted in favourable outcomes for the
tipsters. Stephen Kohn of the National Whistleblowers
Centre worries that the appeal court’s ruling in the
Boeing case will have a “chilling effect” on employees
considering reporting corporate misdeeds. Company
bosses, on the other hand, fear what would happen if the
courts or Congress extended whistleblower protection to
anyone who went telling tales to the press: not only
would they be tied up in countless lawsuits; they would
suffer having all sorts of confidential information
dragged out into public view.
Sacked
for telling tales
