WASHINGTON— House Republicans on Wednesday took aim at a whistleblower provision of a recent bank reform law, part of a broader attempt to limit the impact of the legislation.
Rep. Michael Grimm, a New York Republican, introduced draft legislation at a House Committee on Financial Services subcommittee hearing Wednesday that would require employees to report fraud to their employers before they can receive a monetary reward for reporting it to the Securities and Exchange Commission.
The Dodd-Frank Act allows a whistleblower to go directly to the SEC without the company being notified and provides the employees with financial incentives, Grimm said.
“The Dodd-Frank law disincentives employees from reporting fraud internally,” Grimm said.
The Republicans also said the new rewards program hurts older provisions from Sarbanes-Oxley, which mandated internal reporting standards for companies. “The whistleblower provisions in the Dodd-Frank Act put these whistleblower laws in danger of being obsolete,” Grimm said.
There is concern about the SEC’s power. The law rewarded the SEC additional authority without looking at the agency’s past problems and investigative ineptitudes, said Rep. Edward Royce, a California Republican.
“We’ve had many failures at the SEC over the years,” Royce said.
A witness from the business community voiced his support for Grimm’s legislative proposal.
Robert Kueppers, deputy chief executive of Deloitte & Touche USA, said reporting only to the SEC creates a risk that the agency would review the claim too late. It would be safer if the company has the information first, he said.
“It would not serve the interest of the investors the rules are supposed to protect,” Kueppers said.
Democrats on the committee oppose repealing this section of Dodd-Frank. The provisions are important to preventing another crisis, said Rep. Maxine Waters, the California Democrat.
The professional and social implications of whistleblowing will prevent people from running to report false claims to SEC, Waters said. “Whistleblowers are often blacklisted from working in their industry and receive severe social ostracization,” she said.
Earlier, Rep. Barney Frank and other Democrats held a press conference criticizing Republican attempts to delay implementation of the derivatives provision of Dodd-Frank as well as change the structure of the Consumer Financial Protection Bureau.
Democrats said the derivatives rules would impede the ability of the Commodity Futures Trading Commission to set position limits on speculative trading. Spencer Bachus, the Republican head of the Financial Services Committee, said there is nothing in the bill that would stop regulators from clamping down on oil speculation.
The CME Group has made several increases to margin rules during the last week that have had the impact of taking the wind of silver, oil and gasoline futures.
Frank added that he anticipates President Barack Obama will make a recess appointment for the head of the new Consumer Financial Protection Bureau, to prevent the nominee from being voted on by the Senate. Elizabeth Warren, the White House adviser for setting up the agency, would face a difficult confirmation path to running the agency that she laid the groundwork for.