Dodd-Frank's whistleblowing gold mine

Russian-born comedian Yakov Smirnoff describes a furniture ad guaranteeing the company would stand behind their product for six months.  Smirnoff says "that's why I left Russia, I don't want people standing behind my furniture."

Right here in the USA, the 2,300 page Dodd-Frank financial reform bill has citizens reporting citizens to the government.

The SEC is "bracing for a flood of tips about alleged corporate fraud coming from people seeking large new bounties created by the law," according to the Wall Street Journal.  The SEC bounties start at a "minimum reward of $100,000," although staffing for the program is not yet funded.

The Journal reports that the SEC expects to get 30,000 tips a year, with half leading to "formal money claims."  The SEC whistleblower program follows a similar IRS program started four years ago, which resulted in 5,700 tips and 468 "qualifying" claims in the last fiscal year.

Just as Enron led to the massive Sarbanes-Oxley regulations, imposing onerous and costly burdens on every public company in the country, the Bernard Madoff Ponzi scheme led to the Dodd-Frank whistleblower regulations.  As the Journal notes,

The SEC was harshly criticized by lawmakers for failing to detect the long-running Ponzi scheme run by Bernard Madoff before it collapsed two years ago. Agency officials ignored or brushed aside numerous tips about Mr. Madoff.  [emphasis added]

So rather than tighten up a system that allowed "numerous tips" about Madoff to be overlooked, Congress has created a new program to overwhelm the regulators with all manner of tips, in the process undermining "internal compliance programs already in place at companies," as the Journal writes.

The Journal reports today that 260 companies, including many industry giants, have written to the SEC warning that "plans to pay bounties to whistleblowers will turn financial fraud into a ‘gold mine' for employees."

The article quotes from the letter and its organizer:

The proposed rules "disincent employees from looking for ways to improve or correct corporate behaviors, and incent them to find ways to profit from corporate wrongdoing... Fraudulent misconduct, the bane of good compliance systems, then becomes the gold mine."

...the whistleblower rules have fueled more concern than any other issue during her 22 years at the Washington group.

"The proposals cut to the very core of what it is that every responsible U.S. company has been trying to do for the last couple of decades, which is to create effective, robust compliance reporting systems," she said in an interview. "This just pulls the legs off the stool."
The Democrats' legislation encourages employees to "turn a blind eye to early signs of fraud" in order to maximize their own rewards.

For those reported on wrongly, what government department returns their reputation?  Where will citizen reporting arise next?  Is the limitless reach of the state in the hands of overzealous or vengeful citizens pursuing their own agenda?

We are a long way from Mr. Smirnoff's Russia, but citizen bounty hunting is a disturbing turn in the crush of big government under the Obama Democrats.   
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