Obama and Whistleblowers: Leak for Me but Not for Thee

While the Justice Department cracks down on government leakers, the SEC is sweetening its deal for corporate insiders who blab

The Securities and Exchange Commission gave final approval yesterday on rules that would pay tipsters for information about bankers breaking federal securities laws. Let's imagine this in Oliver North terms. At the end of the movie Wall Street, Bud Fox sacrifices his own innocence in order to bust Gordon Gecko with a secret wiretap that he hands over to the Feds, condemning Gecko to years in prison for securities fraud. With these new SEC laws, Bud could've gotten a check for blowing the whistle instead of a measly pat on the back from Martin Sheen. It's worth pointing out that it would not have been a small check. Employees-turned-whistleblowers could pocket as much as 30 percent of any money over $1 million seized by regulators in enforcing the law.

The seeming positive gesture for justice sounds like a slap in the face of another set of employees blowing the whistle on internal misbehavior. As we detailed earlier this week, the administration has been quietly waging war on whistleblowers within the federal government. Former National Security Agency Thomas Drake could face as much as 35 years in prison under the Espionage Act of 1917 for leaking information about bloated budgets in the NSA to a Baltimore Sun reporter. Former FBI agent Shamai Leibowitz will spend 20 months in prison for leaking classified information on "communication intelligence activities" to a blogger. And Bradley Manning, the 23 year-old Army private, was arrested for allegedly downloading documents that ended up on WikiLeaks. He's been detained for a year now, including ten months in solitary confinement. One activist is currently suing the federal government for breaking its own rules.

In the case of Bradley Manning and company, the Obama administration's actions liken the task of a well-intentioned watchdog to that of a traitor. The position stands in stark contrast to candidate Obama's praise of whistleblowers and the current rules that have been pushed through the SEC. To quote candidate Obama, "Such acts of courage and patriotism . . . should be encouraged rather than stifled." In a recent New Yorker article on the Department of Justice's treatment of Thomas Drake, Jane Mayer quotes Yale Law Professor Jack Balkin's anxiety about recent leak prosecutions. "We are witnessing the bipartisan normalization and legitimization of a national-surveillance state," Balkin said.

In stark contrast, the administration has reiterated its commitment to reward those who blow the whistle on corporate wrongdoers with the Dodd-Frank rules. This program has actually been in place for several months, but the details of how it would work have been controversial. Passed last year as a part of the Dodd-Frank financial reform legislation, the new rules had been held up over details regarding whether or not whistleblowers would have to report the violations to their company first or could claim the reward by going straight to federal authorities. The SEC approved the measure yesterday by a 3-2 vote letting employees bypass internal channels and still earn the bounty. This makes sense for companies that may attempt to insulate themselves from being implicated in an investigation, and corporate America is responding predictably. According to The Wall Street Journal, "Reaction to the Securities and Exchange Commission’s approval of final rules governing its whistleblower program was split along predictable lines: activists loved it, business hated it and law firms were all over the place."

Ashby Jones, who runs The Journal's Law Blog quoted a couple of said activists and business interests alike in his reaction post about the news. While the head of the National Whistleblowers Center called the measure a "major victory," a top-ranking Chamber of Commerce called reporting violations directly to the SEC rather than to the company "the equivalent of not calling the firefighters down the street to put out a raging fire." The Washington Post's Jena McGregor worries that the temptation for false allegations may be problematic, however. "Cold hard cash, after all, has a way of compelling people to take risks they wouldn’t otherwise--thanks to the opportunity for huge bonuses, traders have taken dicey positions, managers have fudged the numbers on their quarter and leaders have ignored warnings that could hurt their record," she wrote in a column yesterday. However, she continues with her main argument, "At its heart, whistleblowing is an act of doing the right thing--and a tough thing--because someone knows wrong is being done."