Good Example Of Whistleblowing And Sarbanes-Oxley Essay
1. Describe the key characteristics of a whistleblower, and briefly summarize one (1) researched instance of whistleblowing in one (1) publicly traded company within the last 12 months. Include the details of the issue that the whistleblower reported and the effect of the whistleblower’s actions on both the whistleblower himself and the company.
In 2014 roughly one-in-two American workers “observed some form of misconduct” and two-in-three of these “reported it,” with about one-in-four of these experiencing “some form of retaliation”. Not all misconduct gets reported to “media and the government”. Rather, it get reported more often within organizations (EthicalSystems.org, 2015).
Some characteristics of whistleblowers as those who “speak up for principals and ethics and shine a light on unethical practices” that have external effects of “negative consequences for consumers, citizens and colleagues” (Ethical Systems.org, 2015). Other characteristics are that they are often “altruistically motivated” in that their goal is to protect the interests of others. Whistleblowers are generally well educated and hold high positions. They are “interested in altering their behavior” by seeing something wrong within an organization, and not participating, and letting “their own attitudes and beliefs to guide them” (Wines, n.d.). They also tend to be part of a personnel safety representative team within a union, or generally a leader (Bjorkelo, Einarsen, Nielsen, and Matthiesen, 2010). Pejoratively, and unless within a highly ethical environment, “people who score high on the trait of machivellianism (being selfish, manipulative, and deceptive)” are far less likely to report wrongdoing, either within or without an organization (Ethical Systems.org, 2015).
2. Decide whether or not the whistleblower was justified in reporting the company’s actions. Provide a rationale for your response.
A whistleblower case settled in 2014 in a New York district court, is an example of how a former employee of JPMorgan (listed on the NYSE) reported fraud within the investment bank (or its predecessors). It was not precisely a SOX case, but relied on a precedent 1863 federal False Claims Act law which protects citizens from corporate retribution for notifying the federal government if the government was put into jeopardy through contracts with industry (Stemple, 2014).
In this case, JPMorgan engaged in fraudulent behavior for many years leading to 2008 by submitting “thousands of mortgages” to the FHA administration for insurance purposes, when they did not apply. JPMorgan also admitted that internal controls noting such action were not heeded. The employee who notified was awarded over $63 million dollars as part of the total $614 million fine against JPMorgan. He fit the profile of a whistleblower by being an “assistant vice president supervising a government insuring unit” (Stemple, 2014).
The Sarbanes-Oxley Act of 2002 (SOX) was “passed in the wake of a myriad of corporate scandals” with “skewed reporting of selected financial transactions” (SOX-Online, 2012) based on the relatively “recent scandals at Enron, WorldCom and other companies” (The Economist Newspaper Limited, 2005). A central provision of SOX is to “ensure that financial reporting exercises full disclosure”. One way is Section 806: Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud, known in Sec. 1514A(a) as “Whistleblower Protection for Employees . . .” in these companies (SOX-Online, 2012). The whistleblower in the JPMorgan episode was fully justified in reporting to authorities the fraudulent behavior witnessed.
3. Examine the extent to which the whistleblower would be protected under the Sarbanes-Oxley Act. Justify your response.
It therefore seems fitting that the JPMorgan employee, to his own peril, would report such a fraud as perpetrated by a publicly traded firm, especially since the fraud hurt the interests of the federal government. SOX provides the most recent framework for notifying about corporate fraud in other instances (e.g., a recent case of illegal corporate payments at Playboy reported and settled (Snell & Wilmer LLP, 2015)), and sends a clear message that “’this conduct will not be allowed’” and that accountability will be demanded (Stemple, 2014).
The upside to SOX and the “more than twenty federal statutes” protecting and rewarding whistleblowers, as reported in Forbes, is that companies “that encourage internal reporting and prohibit retaliation” will be the ones that will internally rectify “potential problems within their organizations before they become actual problems”. They will then not be liable to provisions of SOX as employees noting an “underlying problem [which] continues to fester” will not “believe their complaints are being ignored” (Healy, 2014). SOX and other whistleblower statues provide the protections for employees of publicly listed companies to take action on their own – to report to the media or to government -- in cases where their complaints are ignored.
Bjorkelo, B., Einarsen, S., Nielson, M.B., Matthiesen, S.B. (2011). Silence is Golden? Charcteristics and experiences of self-reported whistleblowers. European Journal of Work and Organizational Psychology V. 20, Issue 2, 2011. Retrieved www.tandfonline.com/doi/pdf/10.1080/13594320903338884#.VMKtQv7F_to
EthicalSystems.org. (2015). Whistle Blowing. Retrieved www.ethical systems.org/content/whistle-blowing
Healy, Terrance. 2014. 2014 – The year Of The Whistleblower. Forbes January 8, 2014. Retrieved http://www.forbes.com/sites/theemploymentbeat/2014/01/08/2014-the-year-of-the-whistleblower/
SOX-Online. (2012). SOX-Online: The Vendor-Neutral Sarbanes-Oxley Site. Website. Retrieved www.sox-online.com
Stemple, Jonathan. 2014. JPMorgan whistleblower gets $63.9 million in mortgage fraud deal. Reuters.com March 7, 2014. Retrieved http://www.reuters.com/article/2014/03/07/us-jpmorgan-whistleblower-idUSBREA261HM20140307
The Economist Newspaper Limited. (2005). A price Worth Paying? America’s response to Enron and other scandals was the Sarbanes-Oxley law. It is costing plenty – but is it working? The Economist May 19, 2005. Retrieved www.economist.com/node/3984019
Wines, Lisa. (n.d.) Whistleblowing. Powerpoint presentation of Dr. Lisa Wines, Professor of Group Counselling. Sam Houston State University. Retrieved http://www.shsu.edu/~piic/fall2005/presentations/Whistleblowing.ppt
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