* House Republicans holding hearing on whistleblower rule
* Industry wants whistleblowers to report internally first
* SEC not planning sweeping changes to rules
* Republicans have draft bill to change whistleblower rule
* Sen. Grassley takes opposing view of House GOP
(Adds comments from House Republican lawmakers, Senator
Grassley letter to the SEC)
By Sarah N. Lynch
WASHINGTON, May 11 U.S. House Republicans
mounted a last-ditch effort on Wednesday to influence a
corporate whistleblower rule that companies fear will drive cash-hungry tipsters directly to the government, undermining
internal compliance programs.
The lawmakers trotted out a panel of experts, including one
speaking on behalf of the U.S. Chamber of Commerce, to warn on
potentially damaging effects in how the Securities and Exchange
Commission has crafted the proposal.
The SEC's proposal, called for in last year's Dodd-Frank
financial oversight law, would reward people who provide
original substantive tips leading to enforcement actions that
result in sanctions exceeding $1 million.
The whistleblower reward has become one of the most
contentious parts of Dodd-Frank, as companies from Google Inc
(GOOG.O) and Microsoft Corp (MSFT.O) to General Electric Co
(GE.N) and JPMorgan Chase & Co (JPM.N) have asked the SEC to
change the proposal by requiring whistleblowers to report
company problems internally before going to regulators.
Failing to do so, they say, will undermine internal
compliance programs because employees will be enticed by the
prospect of a reward of between 10 percent to 30 percent of the
total monetary sanctions.
"These corporations are not all the mob," said
Representative Scott Garrett, the chairman of the House
Financial Services capital markets subcommittee. "They are not
all engaged in illegal conduct."
SEC officials told Reuters last week that the agency is not
likely to agree to the demands for mandatory internal
reporting, and that a vote on the plan could come as early as
May 25. [ID:nN05263709]
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House Republicans are exploring ways to force legislative
changes to the whistleblower compensation program.
Representative Michael Grimm has drafted a bill that would
amend Dodd-Frank by making internal reporting a requirement
before a whistleblower can get a financial reward.
The bill would also change the law so that a whistleblower
would not be guaranteed a reward, an effort to address concerns
that the law as currently written may lead to an influx of
"The whistleblower provisions in the Dodd-Frank Act put
these internal reporting systems in danger of becoming
obsolete," Grimm said.
But the future of the draft bill is highly uncertain,
especially because at least one Senate Republican has warned
against emphasizing internal reporting.
"The SEC should not throw whistleblowers to the wolves by
forcing them to take this step," Republican Senator Charles
Grassley wrote in a letter to the SEC dated May 10. "The
proposed rule makes a number of statements favoring internal
compliance and corporations over investors."
Wednesday's panel of witnesses mostly supported corporate
America's position on the whistleblower rule.
A whistleblower may "choose not to report internally
because he or she believes that the company could then rectify
the problem, and therefore be subject to lesser or no monetary
sanctions upon which an award would be paid," said Deloitte
Deputy CEO Robert Kueppers in prepared testimony.
Only one witness on Wednesday testified that he is
concerned about the changes to the law proposed in Grimm's
Geoffrey Rapp, a professor at the University of Toledo
College of Law, told lawmakers that the whistleblower
provisions in Dodd-Frank are vital and that whistleblowers are
still likely to report wrongdoing internally first anyway
because they see themselves as "loyal employees."
(Reporting by Sarah N. Lynch; editing by Tim Dobbyn and Andre