Whistleblowing: The Dodd-Frank Effect

Andrew Dunifer

Lyndsay Gensler

Tony Fleming

University of Nevada Las Vegas

MBA 706: Law Regulations and Ethical Issues

Spring, 2012 WHISTLEBLOWING: THE DODD-FRANK EFFECT 2

For almost a century and a half, the continuous evolution of whistleblowing policy has caused great ethical debate in the United States and throughout the world. This paper will address the origins of whistleblowing in America and some historical highlights of federal policies which have shaped the legislation to protect citizens’ rights to seek authority in divulging information about improper acts in the workplace. Whistleblowers can report in two ways: externally to mainly government agencies or some news outlets, or internally, within their own company. The alternative for the whistleblower to report internally may require that a certain protocol is in place to handle such information.1 Whistleblowers are generally sheltered under various legislative acts which offer them protection from retaliation from their employers for wrongful termination. Employees, in certain cases, could also be eligible for monetary rewards and limited “make whole” remedies if the accusations are proven true.2

Legal evolution has passed into law many legislative acts, clauses, amendments, as well as state legislation to protect whistleblowers over time. However, we shall focus primarily on the history of federal laws protecting whistleblowers, discussing some of the latest statutes accepted in reaction to the breakdown of the national economy and at the epicenter of the financial crisis of America. Mainly, the

“Dodd–Frank Wall Street Reform and Consumer Protection Act,” enacted into law in August of 2011, will be analyzed in further detail as well as a pending bill that may weaken Dodd-Frank’s whistleblowers’ protections in the “Whistleblower Improvement Act of 2011.” 3, 4 We will first look into the historical events that transpired leading up to the present-day law and explore some of the opposing debates of this policy. Beyond the legal implications, the second part of this analysis will discuss ethical issues which arise within whistleblowing and how these same general dilemmas may be emphasized as part of this new regulation within the financial sector of the United States.

Even before the term “whistleblower” was coined, Congress, under Abraham Lincoln’s administration, enacted the “False Claims Act of 1863” in an effort to prevent fraud that had affected the

Union Army during the Civil War.5 The army had been receiving fraudulent supplies and provisions, WHISTLEBLOWING: THE DODD-FRANK EFFECT 3 especially gun powder sold to them during this time, and so the act was passed to penalize those perpetrators and to encouraged citizens to come forward if they knew of any activity to defraud the government and public money.1 One of the most important elements of this act is the ability for private citizens, “relators” who reported the violations of the law, to collect up to fifty-percent of the civil damages recovered under prosecution of those found guilty. This form of reward is part of what is known as “qui tam” litigation.6 Today, “qui tam” laws are only found in Federal law under clauses of the False

Claims Act and two other Federal pieces of legislature regarding to patent rights and one remaining

“Indian Statute.”7

Over 50 years later, in 1915, Senator Robert La Follete of Wisconsin had his “Seamen’s Act” approved by President Woodrow Wilson, another notable step in whistleblower history. Prior to this time, merchant marines, many of which were not authorized United States citizens, were subjected to long working hours, harsh living conditions, discrepancies in wages, as well as the inability to take off time from work and recognize religious days on-board their ships.8 The ship’s managers argued contentiously that allowing these new regulations would send them into bankruptcy.8 However, once the act passed, the seamen were no longer subjected to criminal prosecution for not abiding the orders from the ship’s management.8 They were able to reach-out to members of Congress and disclose any breaches of contract without fear of retaliation under the protection of the “Seamen’s Act.”8

1945 brought forth some amendments to the “False Claims Act,” which is the premise for much of the reform of whistleblower laws and an emphatic concern of the “Whistleblower Improvement Act of

2011” currently under Congressional review. Government, in this midcentury era, saw a rise in private citizens who no longer brought forth new information to prosecute those in breach of the act.7 Instead, informants were utilizing information that was already secured by the government and through regular enforcement of laws. Francis Biddle, the Attorney General at this time, pleaded with Congress in an WHISTLEBLOWING: THE DODD-FRANK EFFECT 4 attempt to repeal the “qui tam” provisions, and according to Doyle’s (2009) research report presented to

Congress, restated that:7

Such plaintiff’s at times not only use information contained in indictments returned against the

defendant, but also seek to use Government files to prove their cases. Consequently, informers’

suits have become mere parasitical actions, occasionally brought only after law-enforcement

offices have investigated and prosecuted persons guilty of a violation of law and solely because

of the hope of a large reward.7 (p. 5)

Due to these allegations, the amendment also sought to reduce the amounts awarded to the plaintiffs from fifty-percent down to a twenty five-percent maximum, as long as the suits did not have information that was already furnished by the government. Furthermore, if the government was to get involved in the actual litigation, the award had a further reduction to ten-percent.7 This was not the last time this type of ethical dilemma in whistleblowing laws came to light, as discussed later in the analysis.

Ten years later, “The Civil Rights Act of 1964” provided protection to whistleblowing within the private sector of business. The act sought to eliminate state segregation laws and offered some of the most important protection to civil rights in United States history.9 As part of “Title VII” of this act, employers could be punished for discriminating against employment of individuals based on “race, religion, national origin and gender.” 9 The Equal Employment Opportunity Commission (EEOC) was designed as part of

“The Civil Rights Act of 1964” to monitor and enforce “Title VII” of this portion of regulation.9 Anyone who came forward with evidence of discrimination under these provisions would be protected from retaliation by their employer under penalty of this law.9

The 1970’s brought on a variety of social welfare and environmental reforms, most notably the

“Occupational Safety and Health Act,” more commonly known today as OSHA laws.10 Prior to this period, many individuals in the “working class” were injured or even killed on the job, in addition to being exposed to disease type injuries.10 The OSHA laws sought to protect those workers by establishing WHISTLEBLOWING: THE DODD-FRANK EFFECT 5 three divisions as part of the act. First, the Occupational Safety and Health Administration handled the regulations and proper conduct imposed by the act.10 Second, the National Institute for Occupational

Safety and Health researched any improper procedures.10 And lastly, the Occupational Safety and Health

Review Commission reviewed any cases infringing on the rights offered as part of the act.10 OSHA gave citizens a type of whistleblowing protection in implicating their employers that were in violation of the law and sought to punish organizations found guilty.10

Further protections of whistleblowers were developed in 1978 as part of the “Civil Service

Reform Act.”11 The design of the act was to combat issues with wage incentives and their classifications, management’s ability to fire employees unsuitable to perform work, as well as some protection of the rights of federal employees who were unsupported prior to this time.11 The newly enacted laws gave federal employees freedom to report on issues breaking regulations set forth by this act.11 Previously, many federal employees were intimidated to expose the misconducts that took place at their places of work. This act allowed employees to disclose those wrongdoings under protection of the law.12

“Qui Tam” law and the “False Claims Act” had a second amendment enacted into the law in

1986.7 As discussed earlier, the first amendment of this law imposed stricter regulation and guidelines for payment to citizens that produced information about fraudulent practices against the government.7 This second amendment loosened up this regulation, offered more protection to whistleblowers, and imposed more severe penalties to those in violation of this act.7 One of the main characteristics of this amendment was the increase of the compensation cap from twenty five-percent to thirty-percent of damages for relators that produced the implicating information.7 It also specified a “preponderance of evidence” to establish the burden of proof, and increased the minimum and/or maximum amounts of damages a plaintiff could incur.7 The amendment, additionally, gave states the ability to be “qui tam” relators and established the necessity for a just “cause of action for retaliation against whistleblowers.”7 WHISTLEBLOWING: THE DODD-FRANK EFFECT 6

In 1989, the “Civil Service Reform Act of 1978” was amended from which the “Whistleblower

Protection Act of 1989” evolved. According to Fine (2006), the “Whistleblower Protection Act” now extended coverage to “current employees, former employees, or applicants for employment to positions in the executive branch of government in both the competitive and excepted service, as well as positions in the Senior Executive Service.”13 The reform also set-up several environments in the executive branch of government to handle cases that undermined the act, including the Merit Systems Protection Board, informally acknowledged as “Chapter 77,” the Individual Right of Action (IRA) board, and the Office of

Special Counsel, to which informants can file concerns under “negotiated grievance procedures.”14 All of which are intended to protect those individuals, under the new regulation, from any retaliation.14 In 1994, the “Whistleblowers Protection Act” went under a slight amendment to include a “timing/knowledge test” that examined whether the retaliation in question was done within a certain time-period following a reported incident and if knowledge of the report was, in-fact, a contributing factor for the relatiation.15

Another amendment to the act occurred in 2007 to further envelop certain branches of Federal Employees which were not previously protected,14 which mainly included postal workers, and intelligence agencies like the Central Intelligence Agency (CIA), the Federal Bureau of Investigation (FBI), and the Defense

Intelligence Agency.13 Prior to 2007, there was only a general directive to avoid retaliation in a manner similar to those who were specifically protected under the original clauses.13

The world of business, having been riddled with scandals, namely the well-known Enron case involving major financial reporting fraud, required the instatement of the “Sarbanes-Oxley Act of 2002”

(SOX). According to Lowell (2002), this act made it illegal for those in association with:

…a registered public accounting firm, or any associated person, that performs an audit required

by the securities laws, rules of the SEC, or the rules of the new Public Company Accounting

Oversight Board ("the Board"), to provide, contemporaneously with the audit, any non-audit

services, including the following: 1. Appraisal or valuation services, fairness opinions, or WHISTLEBLOWING: THE DODD-FRANK EFFECT 7

contribution-in-kind reports. 2. Legal services and expert services unrelated to the audit. 3. Any

other services that the Board determines to be impermissible.16 (p. 6-9)

Senior executives who must sign-off on information provided in accounting audits are also bound under this law. Several sections of the “Sarbanes-Oxley Act” (806, 301, and 1107) protect whistleblowers, such as: the employees in publicly traded companies to which much of the act is in response; the auditors of these companies; and the employees of private corporations that disclose information to law enforcement about any financial indiscretions breaching federal laws.1 As discussed earlier, breaking these federal laws is protected under the “False Claims Act,” so there could be monetary compensation rewards with reporting under provisions of SOX.

The evolution of whistleblowing brings forth some of the most important financial regulations and changes made over-time in the U.S. government under the “Dodd-Frank Wall Street Reform and

Consumer Protection Act,” which was signed in 2010 and initiated into law in 2011.18 Prior to this reform, the United States had entered into a financial crisis as a result of illegal and risky business practices at major financial banking institutions, and subsequent lack of government regulation involving these entities. The damages from the financial collapse were felt world-wide and sent the United States into what many refer to as: “The Great Recession” of today. The bill, which was proposed by Senators Chris

Dodd of Connecticut and Barney Frank of Massachusetts, was well over 2000 pages long, and included certain banking limitations such as the “Volcker” rule, which restricts risky behavior of major banks, and other provisions that put boundaries around federally insured banks to avoid involvement in the trading of derivatives.17 The law also gives new powers, allowing the government to monitor and enforce regulations on Wall Street, and it provides better consumer-protection regulations as part of the Federal Reserve

System, implemented in an effort to correct how loan money is dispensed into the economy. 17

Whistleblowers that offer evidence of business misconduct to the Securities Exchange Commission

(SEC) about infringements upon these new regulations of law are protected from retaliation by their employer.18 In cases that involve “monetary sanctions of over $1 million” the whistleblower could be WHISTLEBLOWING: THE DODD-FRANK EFFECT 8 entitled to a ten-percent to thirty-percent reward of monies recovered if those entities are found guilty of criminal wrongdoings, as long as the information is “original” and provided on a voluntary basis from the source.18 Voluntary meaning that once a request is made for information from the SEC, any subsequent evidence disclosed, which could lead to indictments and guilty verdicts, is therefore forfeited from potential monetary awards.18

Currently, a bill is under review to amend the “Dodd-Frank Act,” and has some strong criticisms of the reward and reporting system of Dodd-Frank.19 “The Whistleblowers Improvement Act of 2011” is new legislation which acknowledges some issues of Dodd-Frank as introduced by Senator Grimm of New

York.19 The two main points of contention within this proposed bill are: 1. Dodd-Frank fails to have whistleblowers utilize internal resources at their companies before presenting evidence to the SEC, and 2. the bill would restrict a 180 day statute of limitations for reporting such information.19 Senator Grim believes that whistleblowers who fail to first report securities fraud internally are making the government vulnerable to countless unwarranted claims, and any whistleblowers that do not make these primary reports before going to the SEC should not be monetarily rewarded. 19 The same refusal would apply to those who report later than 180 days in order to avoid whistleblowers who may sit on knowledge for a longer period in order to increase payment.19 Lastly, the bill would remove the minimum award of ten- percent that Dodd-Frank provides in compensation, and would leave the SEC to decide on the award (if any) up to thirty-percent at most.19 The bill is under committee review and will be put forth in front of

Congress later this year.20

Similar to the issues brought up in the amendments to the “False Claims Act” in 1945, the financial awards and character of whistleblowers have, again, come under fire, causing to question why the whistleblowers’ protections were put into place. Are they to empower employees by giving them a legal remedy for ensuring their safety and legal rights to work in an honest and safe environment; or are they used to empower employees who feel they are being asked to perform duties beyond their ethical, or WHISTLEBLOWING: THE DODD-FRANK EFFECT 9 even legal, standards? Much of the regulation enacted over-time has served to derail fraudulent activity, which has severely impacted the U.S. and world economies. However, do monetary rewards for information about potential fraud do enough to prevent the issues, or does it simply perpetuate and expose the government to even more unfounded allegations by those employees seeking personal gain? The claims made to restrict whistleblowers’ rewards and power to report to outside agencies, such as suggested in the “Whistleblower Improvement Act,” have potentially helpful and harmful effects in their intentions to better protect employees, businesses, and society as a whole.

Public policy, in a general sense, offers protection to people in various instances whereby they refused to act unlawfully, attempted to perform a duty prescribed by statute, exercised their rights as specifically conferred by law, or “blew the whistle” by reporting what they believed to be misconduct by their employer.21 The whistleblower provisions, focusing specifically on the accounting and auditing functions presented by the “Dodd-Frank Act,” are two-fold: they protect the whistleblower from employer retaliation for filing a claim or complaint in regards to fraud, and they provide a financial incentive for those with original, or new and relevant, information to come forward.18 Using the ethical approaches of Utilitarianism, Rights and Duties, and Fairness and Justice, the moral obligation of whistle- blowing and the implications of the legal protections and potential monetary compensation provided to those who do blow the whistle will be addressed.22

The basis for Utilitarianism lies on the premise that the moral act is that which provides the greatest good for the greatest number of people. Since the ethical action is the one producing the most benefits, or the least harm, to the largest number, the outcome, or result of an action, is the basis for consideration. In the spirit of truth-telling and moral duties as human-beings, potential whistleblowers must consider whether their actions will result in greater benefits or greater burdens for society as a whole. Regardless of the legal protections, like those afforded by the “Dodd-Frank Act,” an employee WHISTLEBLOWING: THE DODD-FRANK EFFECT 10 who is aware, or suspicious of, unethical and/or illegal misconduct by their employer, has a societal obligation to divulge the information they have of the misgivings in order to rectify the situation.

While the whistleblower provisions of the “Dodd-Frank Act” protect the potential whistleblower from retaliation, in addition to providing a monetary incentive for their contributions, the utilitarian approach finds that an employee is obligated to come forward with the information for the betterment, or greatest good to society, regardless of the legal implications. An employee which knows or suspects inappropriate conduct on the part of his or her employer therefore, has an ethical duty to make right the situation by attempting to unveil the truth and reporting the misgivings. This makes the personal effects or legal protections the situation may bring onto the would-be whistleblower irrelevant under the utilitarian approach. Instead, the employee must consider their alternatives, which, in this case, includes two options: say something or say nothing.

To say nothing, the impact can have potentially vast implications on all of society. While the fraud may be menial, massive, or somewhere in-between, it must be exposed. If nothing is said, the suspected acts will likely perpetuate and develop greater implications on the employees, organization, shareholders, and overall society. Hypothetically speaking, a small company illegally fudging their financial statements could have a huge, negative impact on society. For instance, the employee performing the grievance could tell their associates, who tell their associates, and so-on, all of which may choose to implement similar unlawful acts. While one company benefiting from its simple “little white lie” may seem to hurt few, if any at all, while helping their respective parties, via employees, the business, and shareholders, it will result in increasingly greater negative impacts on society as a whole. The result of an employee with this implicating information keeping silent, as a necessary consideration in the utilitarian approach, does not create the greatest good for the greatest number of people. WHISTLEBLOWING: THE DODD-FRANK EFFECT 11

This brings to attention the idea of overly-sensitive employees implicating their companies for what most may feel is common-practice, and often the legal process, for the act in question. These whistleblowers may bring unjust and unnecessary burdens onto their employers by seeking an external investigation into their assumptions. The morality of these types of whistleblowers, under the utilitarian approach, would respect that this burden does not enhance the greatest good for that moment of question.

But in light of unveiling the truth, when there are major societal implications, these exceptions are warranted. Put simply, many menial claims which result in no necessary legal actions will be tolerated in order to protect society from one large, wholly effecting financial or accounting situation, like that of

Enron. Accordingly, the ends is the most important consideration, and act’s such as SOX and Dodd-

Frank, serve to protect people who deem it necessary to expose company procedures which they feel are unethical or illegal in their workplace.

Alternatively, the employee can come forward with the information, which under the “Dodd-

Frank Act,” means reporting it directly to the SEC. While there may be underlying reasons for the employee to present the illegal activities to the government, the outcome, an investigation into the allegations, will result in the greatest good for the greatest number. If the information leads to nothing, then the employee fulfilled their moral and ethical duty to report what they felt were potentially harmful activities. On the other hand, if the information leads to a finding and subsequent legal action, then the whistleblower helped ensure the greatest good for the greatest number in reducing the potential negative impacts that the employer was likely to induce. Whatever the outcome of the whistleblowers actions in exposing their employer to scrutiny, it is justified as moral in Utilitarianism if the action protected, and subsequently ensured, that the greatest good, or least harm, was created for the whole of society.

Some may argue that personal reasons may elicit whistleblower actions in disclosing the fraudulent information, through potential monetary compensation or protection from losing their job.

However, the moral act for the whistleblower is that which they believe the outcome will create the WHISTLEBLOWING: THE DODD-FRANK EFFECT 12 greatest good for the greatest number, which by nature, already includes themselves, their family, and their employer. All potential impacts to all potentially involved subjects fall under the utilitarian’s umbrella. So, regardless the intent of the would-be whistleblower, such as financial compensation, or protection under the law from employer retaliation, an employee with information on practices which they feel are unlawful, must come forward in order to safeguard society. The legal remedies, in this approach, are secondary to truth-finding, and can even be considered helpful in determining the course of action a would-be whistleblower takes in providing support for the decision to report the questionable activities.

Next we approach the act of whistleblowing from the Rights and Duties standpoint. This approach in ethics, states that “the moral act is the act which recognizes the rights of others and the duties that those rights impose on the actor.”

As an employee, one has the right to do his or her job without out being required to execute unethical and/or illegal acts. With this right comes the duty for the employer to abstain from requiring or ordering an employee to perform such acts. While performing his or her job, it is the duty of the employee to work in a non-fraudulent manner, which includes the duty to complete any tasks that have been assigned by a manager or supervisor, unless the act is fraudulent or illegal. These duties of the employee are imposed by the rights for which the employer should expect: the right for honest work by the employee, the right to choose the processes for which a task is completed, and the right to the employee’s loyalty to the organization.

Now suppose a department manager at a publically traded financial company asks an employee to take part in an act that the employee does not feel comfortable doing, meaning the employee is suspicious that completing this act would create misleading quarterly or annual reports. He explains his uneasiness to the manager, but the manager says, “Don’t worry, it is standard practice in this department.” This WHISTLEBLOWING: THE DODD-FRANK EFFECT 13 employee knows he has been asked to do something wrong and feels ethically responsible to not perform the act that he has been asked to complete. He knows that protection is afforded to him under the “Dodd-

Frank Act” if he presented the information directly to the SEC, but believes the issue could be handled internally. The employee is almost certain that senior management does not know about this practice and would like to approach them with the issue. Does legal protection, or incentives, for blowing the whistle empower the employee under the Rights and Duties approach to ethics to publically release information of unethical or illegal acts?

It is the employee’s duty to the organization to perform their job, and it is their right to not be forced to perform illegal and unethical acts. This is based on the duty of the organization to run an ethical operation. The employee then has a duty to the stakeholders, for instance, to report unethical acts internally before going to an outside source. Since stakeholders have the right to the truth, extended to them based on their basic human rights, this process is justified. By reporting internally it may be possible to correct the practice before any financial reports are circulated. In this case, the right to the truth for the stakeholders is upheld and the right to the employer to protect itself from potential internal threats is upheld, and the employee’s duty to report has been carried out.

On the other hand, if the employee finds that senior management is aware of the unethical practice and is responsible for creating the idea in the first place, then the duty of the employee is to report the information to an outside source by blowing the whistle. The duty to report is to the organizations’ stakeholders, as well as potential investors, and should be carried out regardless of being protected by whistleblowing laws. Under Rights and Duties it is unethical to allow the fraudulent practice to continue. Once senior, or lower level, management is involved in an unethical practice, by asking employees to carry-out unlawful work, the company loses its right to enjoy loyal employees. WHISTLEBLOWING: THE DODD-FRANK EFFECT 14

The “Dodd-Frank Act” protects whistleblowers by making it unlawful for a company to retaliate towards someone who reports potentially unethical and/or illegal practices. It also provides a percentage of the damages, no more than 30%, if the company is charged and convicted of a criminal act. However, under

Rights and Duties, is it ethical to provide monetary awards to whistleblowers?

A person protected under the “Dodd-Frank Act” that reports to the SEC, with original information that leads to a conviction, has the right to a monetary award as it is written within the law.

The potential award granted to whistleblowers is designed to provide insiders with an incentive to report unlawful and/or unethical practices to the SEC. The “Dodd-Frank Act” does not provide an award to an informant if he or she reports internally. This financial incentive leaves open an avenue that has potential to violate a financial institution’s right to be informed of unethical and/or unlawful practices within its organization. If an employee chooses to forgo his or her duty of loyalty to the company and reports externally, the right of the organization to hear and correct the practice is violated by the employee; the ethical violation is that of the employee. Although ethical to provide a reward, a whistleblower must recognize his or her duty to first report internally. If the issue goes unresolved, the employer gives up the right to employee loyalty, and the duty of the informant is then to report externally. Under Rights and

Duties, it is only ethical to accept a reward after proceeding without violating the rights of the organization he or she is reporting against. Therefore, it is ethical to provide a monetary reward to whistleblowers, but the ethical decision to accept the reward properly, rests on the shoulders of the informant. More aligned with this argument is the “Whistleblower Improvement Act of 2011,” up for review in July of 2012, which requires the informant to report internally before reporting externally in order to collect any rewards.

The third and final ethical approach of Fairness and Justice defines the moral act as that which treats similarly situated people in similar ways with regards to process and outcome, and with proportion. WHISTLEBLOWING: THE DODD-FRANK EFFECT 15

This approach lies heavily on the impact of procedural and distributive justice, whereby the established, known procedures lead to the ethical outcome through the distribution of benefits and burdens.

For all employees of any organization in which the “Dodd-Frank Act” provides protection and incentive to potential whistleblowers, fairness and justice finds it appropriate. That is, similarly situated people, all employees of an organization or any organization, are treated in similar ways, protected and potentially financially rewarded, for presenting to the an outside authority information which they feel is applicable to illegal and/or unethical acts by their employer. With the Fairness and Justice approach the underlying intent of the employee is irrelevant, whether whistleblowing because they refuse to act or let others act in an unlawful manner or to simply reap the financial rewards associated with exposing the wrongdoings of their employer, rather it only matters that the employees are treated similarly under the letter of the law. Further, the process and outcome are equivalent for all employees who do blow the whistle in that they are protected from employer retaliation and given monetary incentive for their contribution to the legal process of punishing accounting and financial fraud. Proportionality is also achieved through the act in the form of 10 to 30% compensation from monies recovered for their hand in prosecutions which results in over one-million dollars.

If an employee believes, with substantiated evidentiary support, that accounting or financial fraud is taking place in their organization, procedural justice under the “Dodd-Frank Act” encourages them to come forward with the material information. The process for investigation of the potential fraud is established within the act, whereby the employee’s participation continues, and the appropriate distributive justice is rendered. Whether the information leads to something or nothing, the outcome, through the distribution of burdens, to the company, and benefits, including protection from retaliation and potentially a financial reward, to the whistleblower, are determined and proportionally equivalent for all potential, similarly situated employees. WHISTLEBLOWING: THE DODD-FRANK EFFECT 16

The other parties to consider in the Fairness and Justice approach to ethics, in respect to whistleblower protections, are the organizations or business entities. All organizations, under the “Dodd-

Frank Act,” are treated in the same way with respect to procedural and distributive justice. When the whistle is blown on a company through the process of the “Dodd-Frank Act,” the whistleblower reports the questionable activity directly to an outside agency, the SEC. In this sense, all similarly situated companies are treated similarly, whereby the employee bypasses an internal remedy for rectifying the indiscretion, and a government-driven review of the potential violation is undergone. Regardless of the company, the same process is used to determine if the law is violated, spring-boarded by the whistleblower's assertions. As follows, the burden the company faces, both through the investigative process and the final findings, is distributed in a similar way to all companies facing similar circumstances. Accordingly, if nothing comes of the whistleblowers information, the business is simply subject to compliance with the investigation and prevented by law from retaliating against the employee for blowing the whistle. Alternatively, if a company is implicated and the whistleblowers information does uncover unlawful acts by the organization, the organization is required to pay some penalty, which the SEC deems appropriate, in addition to rectifying the situation, and must not retaliate against the whistleblower. Because all organizations are subject to having a potential whistleblower, in which a process for investigating and determining the remedy for the findings, fairness and justice achieves morality under this ethical approach.

Some may argue that the same potentially implicating information may result in more stringent, extensive investigation and burdens on different sized or types of companies. However, under the letter of the law, these similarly situated companies, with similar potential discrepancies, should be treated similarly with regards to process and outcome. That is, each company is obligated to comply with the provisions of the act in both the investigation of the information to uncover the truth, and the protection of the whistleblower from retaliation. Proportionality also comes into play in this instance, whereby a large,

Fortune 500 company performing the same illegal acts as a 200 person operation, will result in greater WHISTLEBLOWING: THE DODD-FRANK EFFECT 17 burdens in process and distribution under the act. Because the scope of a large corporation is much greater, as are the impacts on its shareholders, employees, economy, etc., more time, energy, and resources are required to investigate the same potential abuse then would be required for a smaller business. This further supports fairness and justice, in that, proportionality is maintained with respect to truth-finding.

Proponents of the “Dodd-Frank Act,” like Senator Grimm of New York, are seeking to remedy what they consider to be injustices in fairness to the companies subjected to whistleblowers through the

“Whistleblower Improvement Act.” Grimm's contention lies on the grounds that potential whistleblowers can sit on information in order to allow their potential monetary gains to increase, thus affording them a better incentive for their insider information. These types of acts would serve to discriminate against larger companies, which render larger sums of money for their indiscretions, thereby subjecting them to greater losses. However, the possibility for these types of activities are equivalent for all businesses, large or small, and while the monetary loss overall is potentially greater for larger firms; the overall percent effect is equal based on relative size and impact of the fraudulent activities. Though it is likely that larger, more lucrative businesses will be targeted more frequently in instances such as these, and so the proposed improvements, including a 180 day statute of limitations on reporting accounting or financial fraud by would-be whistleblowers, would serve to better reduce these discriminating effects and treat like-companies more uniformly.

As discussed within the context of the “Dodd-Frank Act,” all similarly situated parties involved in the whistleblowing of potential financial or accounting fraud are treated similarly, with regards to process and outcome and with proportionality, thus making the act morally justified under the concepts of the Fairness and Justice ethical approach. WHISTLEBLOWING: THE DODD-FRANK EFFECT 18

Evolution of whistleblower protections and compensation under the law has brought forward many debates as to the ethical dilemmas associated with implicating an employer. A look into the history of these protections and as evaluated through the three approaches to ethics, the underlying intent of the law, in supporting employees which may have incriminating evidence of wrongdoings on their company, generally accept its provisions in offering protection to those who deem their workplace unethical and/or unlawful in its activities. While this paper was a mere glimpse into the legal and ethical implications of whistleblowing, and, as such, focused on the financial reporting aspects of the recent happenings in the legal realm, these general types of protections have saved lives and improved workplaces and economies.

By not only holding businesses accountable, but also giving an outlet to employees whom otherwise would have gone unheard, whistleblower protections have solidified their place in the law. The ever evolving United States legal system, as discussed with the pending “Whistleblower Improvement Act of

2011,” will continue to grow and adjust to help protect its citizens from these types of situations as businesses further find ways to gain major profits in short-changing society. WHISTLEBLOWING: THE DODD-FRANK EFFECT REFERENCES - 1 References

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22. Gilbert, J. (2012). Ethics for Managers: Philosophical Foundations and Business Realities. Also retrieved from classroom commentary. (Note: the ethical analysis presented in this paper was formulated based on the Spring, 2012 UNLV MBA 706 teachings of Professor Gilbert).