Established by the Sarbanes-Oxley Act of 2002, the PCAOB is led by five Board Members appointed by the Securities and Exchange Commission (SEC). The PCAOB “oversees the audits of public companies and SEC-registered brokers and dealers in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports.”
It has authority to investigate and discipline registered public accounting firms and persons associated with those firms for noncompliance with rules and standards governing the audits of public companies, brokers, and dealers. PCAOB enforces financial regulations and sweeping auditing for public companies. When violations are found, the PCAOB can impose appropriate sanctions. This stops the public and employees from committing dishonest financial practices and accounting errors. Currently, the PCAOB does not have an established whistleblower program.
The National Whistleblower Center (NWC) strongly supports the Public Company Accounting Oversight Board Whistleblower Protection Act of 2019. This bill would strengthen the existing anonymity provision, establish a whistleblower reward program at the PCAOB and protect whistleblowers from retaliation.
There is reason to believe this legislation would enjoy broad public support. A Whistleblower News Network poll released in October 2020 shows that the American public considers corporate fraud a national priority and wants to help whistleblowers who expose it.
When asked if passing stronger laws that protect employees who report corporate fraud should be a priority for Congress, 82 percent of those surveyed agreed, with 29 percent stating that it should be an immediate priority. This poll should provide Congress with all the encouragement it needs to act on pending whistleblower bills addressing private sector corruption, like this Act.
Understanding the Bill
The PCAOB Whistleblower Protection Act would create a whistleblower program for the PCAOB and advance two principles that have been key to the success of other whistleblower programs: incentives through rewards, and protection from retaliation. Creation of this whistleblower program within the PCAOB would complement the successful whistleblower program at the SEC’s Office of the Whistleblower.
Here are the key provisions of the bill.
I. When a Case Qualifies
Section 2(A) of the bill details the types of whistleblower cases it is seeking to encourage. The bill covers cases resulting in “monetary sanctions exceeding $2,500.” Therefore, whistleblower case qualifies for the compensatory and protection measures detailed in this law only if the financial penalty imposed by the Board is greater than $2,500. This relatively lower figure is important to ensure that whistleblowers are not concerned about being left without protection if they choose to come forward.
Section 2(B) states that in order to be eligible for a reward, the whistleblower must submit original information, which is defined as deriving from their independent knowledge or analysis and not otherwise known to the Board.
II. Rewards for Whistleblowers
A. Rewards are Mandatory
The bill’s language in Section 2(2) indicates the obligatory nature of its rewards provision,
“In any covered disciplinary proceeding, the Board shall pay an award or award to 1 or more whistleblowers who voluntarily provide original information to the Board that resulted in the board imposing monetary sanctions…” [Emphasis added].
Rewards given to whistleblowers due to their valuable contributions to the PCAOB’s enforcement abilities would be mandatory. Concrete and obligatory reward provisions are essential for whistleblowers who are forthcoming. Whistleblowers, or potential whistleblowers, make decisions that can risk their lives and livelihoods. Without the reassurance of compensation for this risk, whistleblowers will be less inclined to and less financially able to blow the whistle.
B. Range for Rewards
Section (2)(a)(i-ii) proscribes a percentage range for rewards to whistleblowers. The percentage awarded to the whistleblower(s) of the total monetary amount recovered by the PCAOB — due directly to a whistleblower’s tip — would be no less than 10% and no greater than 50%.
A percentage reward ensures that whistleblowers are motivated to come forward with high-quality information about larger and more significant cases. A floor and ceiling percentage requirement, as in this law, further increases the appeal to blow the whistle on fraud. A set range ensures that subjective criteria do not leave the whistleblower with a meaningless reward.
III. Confidentiality for Whistleblowers
The bill addresses confidentiality concerns for whistleblowers in two important parts.
First, Section 2(6)(E) protects a whistleblower’s confidentiality when reporting. It notes,
“(ii), the Board and any officer or employee of the Board may not disclose any information without the written consent of the whistleblower,”
This provision is significant as it keeps the whistleblower, and their advocates, in control of the disclosure of information which could lead to reprisal and retaliation. Whistleblowers often fear that their identity will be unmasked; this provision ensures that it won’t.
Second, this law protects whistleblower confidentiality, allowing an individual who knows of fraud to submit a tip to the PCAOB through a lawyer and without disclosing their identity. However, it also balances the need for the PCAOB to verify the whistleblowers identity before giving an award. The confidentiality provision can be found in Section 2(3)(b)(ii). Coupled with the reward provision previously discussed, a confidentiality protection provision is critical, as this assurance could be the deciding factor for several whistleblowers for whether to speak up regarding corruption.
A. General Procedures
The PCAOB Whistleblower Protection Act of 2019 incorporates the general procedures of established law, the 49 U.S. Code § 42121(b).
The legal burdens of proof, and the procedure that must be followed, include the required showing by the complainant and employer, the criteria for determination, deadline for issuance, remedy (including A) affirmative action to abate the violence, B) reinstate the complainant to his or her former position together, and C) providing compensatory damages to the complainant), and enforcement of order by parties, including attorney fees. Additional details can be accessed here.
B. Appeals are Discretionary
Section 2(5) deems appeals to be discretionary, ensuring that cases do reach a final determination. This prevents the program from falling into ceaseless litigation, remaining efficient.
“Any determination made under this subsection, including whether, to whom, or in what amount to make awards, shall be in the discretion of the Board.”
V. Anti-Retaliation Provisions
A. Ensuring Retaliation is not Allowed
Section 2(6)(B) protects whistleblowers against retaliation, an exceedingly common situation. The section reads,
“Any whistleblower who alleges discharge or other discrimination or is otherwise aggrieved by an employer in violation of subparagraph (A) may seek relief ‘(I) by filing a complaint with the Secretary of Labor; or…”
Implementing a preventative framework such as this strong anti-retaliation provision would prohibit retaliatory efforts by employers. Crucially the law would make illegal such reprisal, and provide compensation to whistleblowers.
B. Remedies for Retaliation
Section 2(6)(D) includes substantial and specific anti-retaliation enforcement provisions to ensure that the whistleblower will receive compensation for any reprisal against them. It notes,
“Any whistleblower who prevails in any action brought under this paragraph shall be entitled to all relief necessary to make the whistleblower whole, including- ‘(I) reinstatement of the same seniority status… ‘(ii) 2 times the amount of backpay otherwise owed to the whistleblower, with interest… ‘(iii) consequential and compensatory damages;”
Status of PCAOB Whistleblower Protection Act of 2019
On June 19, 2019, the House Committee on Financial Services held a hearing to discuss the proposed bill, under the leadership of Chairman Maxine Waters (D-CA) and Ranking Member Rep. Patrick McHenry (R-NC). The witnesses included,
- Jordan A. Thomas, Partner, Labaton Sucharow
- Urska Velikonja, Professor of Law, Georgetown University Law Center
- Andrew N. Vollmer, Professor of Law, University of Virginia School of Law
- Stephen Crimmins, Partner, Murphy & McGonigle PC
As the PCAOB’s purpose is to protect American investments in publicly–traded companies, the hearing focused on effectively bringing wrongdoers to justice and returning “ill-gotten profits” to American investors.
One concern raised in the hearing was overlap between the already-implemented SEC Office of the Whistleblower, and the proposed PCAOB program. However, Rep. Maloney, a member of the committee, noted that the bill would help close the gap in investor protections caused by the 2017 case of Kokesh v. SEC, which found that the “SEC would not be able to claw back all of the bad actors’ profits.”
In mid-September 2019, the House passed the bill. It has been received in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.
The National Whistleblower Center strongly urges Congressional support for this legislation. Whistleblowers offer the U.S. government unparalleled insight into the internal workings of the entities that wield enormous power in our economy and on the financial well-being of American investors. The NWC aims to ensure that those who blow the whistle are protected. Reward provisions constitute a substantial portion of these vital protections, and the anti-retaliation provisions of the law ensure whistleblowers are fully protected. The NWC supports this bill because it would be a significant step in furthering the rights of whistleblowers, and in doing so, encourages future whistleblowers to expose the truth without fear of repercussion.