Whistleblowers are sometimes mistreated in obviously egregious ways, like the employee of the federal Bureau of Prisons who was assigned to work in a converted prison cell without basic office equipment after speaking out about problems at the agency.
Other times, whistleblowers are silenced before they even have a chance to speak out. Fortunately, the Securities and Exchange Commission (SEC) just took a strong stand against corporate confidentiality requirements that require employees to report potential securities violations internally before going to the commission. The SEC noted that such agreements potentially discourage employees from reporting fraud to the commission, and that commission “rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC.” The commission vowed to “vigorously enforce this provision.”
This is good news. The integrity of the securities markets matters to anyone with a stake in publicly traded stocks, such as through a retirement plan, or taxpayers with an interest in publicly traded companies that are major government contractors. The biggest Ponzi scheme in modern history might have been prevented if someone had listened to the whistleblower raising red flags about Bernie Madoff.
When you silence whistleblowers, you silence the truth. You shut down the ability of people in the know to come forward. Congress has enacted statute after statute to protect whistleblowers and encourage truth-telling. I’ve helped to write many of them, including better whistleblower provisions at the SEC. The commission is right to act in favor of whistleblowers and against securities fraud. I look forward to seeing how the SEC follows through on enforcement.