Corporate malfeasance can have a devastating effect on many innocent people. Perhaps one of the best examples is the 2008 financial crisis, which was caused in part by bankers knowingly issuing subprime mortgages to borrowers with little to no income, job, or assets. As a result of the crisis, the United States unemployment rate skyrocketed from 4.6% in January 2007 to 10% in October 2009.1 The clear question then is how do we prevent and deter corporate malfeasance?
While regulatory agencies routinely investigate corporate malfeasance, it improbable for them to be able to detect every instance of unlawful corporate activity. Employees of corporations may assist in remedying the problem by becoming “whistleblowers” and providing information to regulatory agencies regarding the unlawful acts of their employers. However, inherently there is a conflict of interest presented to an employee who discovers corporate malfeasance. The employee may look the other way out of a sense of loyalty to his or her employer or fear of retaliation from the employer.
Commonly known as the Whistleblower Protection statute, the law protects employees of publicly traded companies by prohibiting discharge, demotion, suspension, threats, harassment, or discrimination of an employee because the employee provided or assisted in an investigation which the employee reasonably believes constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.2 The remedies available to an employee who prevails in an action under a whistleblower protection claim include reinstatement and back pay.3 The statute states that the prevailing employee “shall be entitled to all relief necessary to make the employee whole”.4 Contrary to the statute’s protection, many whistleblowers have not been made “whole”. Former whistleblower, Alayne Fleischmann, provided information to the SEC resulting in a $13 billion settlement with JPMorgan Chase. Her reward: blackballed from employment on Wall Street, resulting in a seemingly one-way ticket back to her native British Columbia, where she now works as counsel to the British Columbia Investment Management Corporation.5
There may not be an easy solution to encouraging additional whistleblowers to come forward. Reinstatement from a wrongful discharge may not be a practical remedy – imagine returning to work when many of your coworkers feel you “ratted” on a friend or colleague of theirs. Further, other corporations may be hesitant to hire a former whistleblower, lest they fall “victim” to another report from the whistleblower. The law needs to provide greater protection for whistleblowers and perhaps greater incentives for firms to hire past whistleblowers.
U.S. Department of Labor, Bureau of Labor Statistics. ↩
18 USCS §1514A at (a)(1). ↩
Id. at (c). ↩
William Cohan, Wall St. Whistle-Blowers, Often Scorned, Get New Support, N.Y. Times (Feb. 11, 2016) http://www.nytimes.com/2016/02/12/business/dealbook/wall-st-whistle-blowers-often-scorned-get-new-support.html?ref=topics. ↩
Charles Lilly III
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