Big companies are begging the Securities and Exchange Commission to give them first crack at whistleblowers before the tipsters be permitted to tattle to the federal watchdog.
In a move critics say runs afoul of whistleblower protections established under the Sarbanes-Oxley Act of 2002, corporations and their legal advisers are asking the SEC to force employees with suspicions of wrongdoing to go through internal channels before taking their complaints to a higher authority.
Last week, law firm Arent Fox, which represents Wal-Mart and drugmakers Genzyme and Elan, asked the SEC to require employees to go through internal whistleblower procedures “as a required prerequisite” to making a claim with the SEC. The law firm also asked the SEC to refuse to accept tips from people with a “fiduciary responsibility” to the company, such as top officers and directors.
The requests come in the wake of the SEC’s call for comments to help establish a new whistleblower program mandated by Congress. The new program will provide much larger financial rewards to people who come forward with tips on corporate misdeeds, and allow them to remain anonymous if they have a lawyer.
Stephen Kohn, executive director with National Whistleblowers Center, called it “obstruction of justice” for companies to discourage employees from taking their complaints to federal authorities, citing laws that call for protection of employees who take information to a “federal regulatory or law enforcement agency.”
SEC officials last week also held a private meeting with a slew of large pharmaceutical and financial companies on the upcoming whistleblower program. The group included Johnson & Johnson, Tyco International, Pfizer, JPMorgan Chase and Citigroup. Details of the meeting are unknown.
Their lawyer, Barry Goldsmith of Gibson Dunn, didn’t return a request for comment.