LIVEBLOG: Whistleblowing Under Dodd-Frank

10:30 a.m.

The panelists took a couple of final questions. Watkins said she thinks Dodd-Frank is a very difficult law and "may amount to nothing but a headache" unless the issues of retaliation are dealt with. It is far more lucrative and safe, still, to stay quiet, she said.

Koenigs: "Doing the right thing isn't easy." But, she said, it is important that people step forward.

NYSSCPA President Wood is thanking the panelists and audience. "I think we had some wonderful give-and-take here with the questions."

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10:25 a.m.

The panelists are discussing retaliation against whistleblowers.

McKenna: "Retaliation is something you can respond to" with legal action.

Watkins: Made a prediction that Dodd-Frank won't change whistleblowing dramatically. "People will go to things like Wikileaks," she said, which she said "can do much damage" to companies. "Good companies will be able to survive," she said.

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10:20 a.m

Q: Where do you stand on the SEC policy where a company is fined and doesn't have to admit fault?

Atkins: "These things are negotiated," he said. For company to agree to settle, there has to be that provision," or it could create a situation ripe for a class-action suit. Without that provision, there would be far fewer settlements, he said, and a lot more court cases.

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10:12 a.m.

A member of the Society's Professional Ethics Committee noted that the NYSSCPA recently changed its Code of Professional Conduct to include compliance with whistleblowing provisions.

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10:02 a.m.

Q: What would be the ideal situation to protect whistleblowers?

Watkins: It comes down to compensation. "Stock options incentivize short-term risky behavior," she said. She noted how fast Enron's stock went up during its period of success, and said that stock options provide an incentive to CEOs and others who hold the stock to squelch any potential fraud. She suggested that incentives be paid in cash, "so that the right voices in the organization will be heard."

McKenna: She said she is very sad about regulations that are passed without the funding for them. She said she's a big proponent of Sarbanes-Oxley, "but it hasn't been enforced."

Atkins: "Unfortunately, with a lot of these complicated rules, it becomes very hard to prosecute ... and for folks to know where the line is."

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9:55 a.m.

Q: A Society member asked Koenigs to respond to Watkins' statement that she has "whistleblower" stamped on her forehead and could never get another job in corporate America.

Koenigs: She said this is why the SEC is now allowing anonymous whisteblowing.  "I don't think it has to be a scarlet letter. It shouldn't have to be that way," she said.

Atkins: "All this emphasizes that companies should have an internal robust compliance structure," he said. "For all of those cases, every Enron, there are false accusations or [cases] that go nowhere. You have to find a balance.  My fear is this particular rule will skew the balance and encourage more especious claims."

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9:50 a.m.

Watkins is back up at the podium. She noted that when the SEC went to visit Madoff, he admitted that "if they had asked to see my broker statements" the jig was up. In that case, she said, the SEC didn't take those investigative steps. "If people don't think the SEC is going to be a reliable source, this is an ineffective provision," she said. 

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9:32 a.m.

Time for questions from the audience, both in person at the session and viewing via webcast.

Q: How does someone who has a duty to work through these issues internally, how do they weigh the situation to determine whether they should go outside? "Up? Or Out?"

Watkins: "Companies that are manipulating the books, we're talking about very sophisticated companies... they don't use language that would appear to shut you down." She said when she testified before Congress, she found out that CEO Ken Lay was looking into letting her go for bringing up her accounting concerns.

Koenigs: "Auditors have a responsibility first to investors." Auditors can go forward with concerns through the Dodd-Frank whistleblower provisions, she said, reporting to the SEC if they feel like internal compliance programs aren't providing an answer. With certain restrictions, they may also be able to collect the associated reward, she said. "Most companies that have robust compliance reporting systems... don't report up to a CEO. They report to an audit committee."

Atkins: He called the whistleblower provisions "sort of taking a sledgehammer to a problem that might be solved differently." Problem is, he said, with a company like Enron with "collusive fraud," it's difficult for the fraud to be revealed without a whistleblower reporting it -- and that's "if they are even listened to." He noted there are also "crackpots" constantly providing tips -- people who have a grudge against a company, a recently fired employee, etc.  

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9:29 a.m.

"The challenge for the SEC is separating the wheat from the chaff" in regards to tips, Atkins said.

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9:22 a.m.

"The trouble is good companies tend to be good companies, but the bad eggs are out there, as Sherron found out," Atkins said.  

He called Dodd-Frank's whistleblower provisions "the latest culmination of whats been developing since the Civil War. The Civil War was when the False Claims Act came out."

Atkins is providing some other historical examples of insider trading and financial fraud reforms. Of significance is the Sarbanes-Oxley Act, which also instituted a whisteblower provision, focused on anti-retaliation, he said. 

Dodd-Frank goes beyond all these, he said.

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9:15 a.m.

Former SEC Commissioner Paul S. Atkins is now at the podium. Atkins was appointed by Congress to serve as a member of the Congressional Oversight Panel for the Troubled Asset Relief Program from 2009-2010.

"The whistlebower provisions are but one of a whole host of rules," in Dodd-Frank, he said.

"Tips aren't a problem at the SEC," Atkins said. "There are literally thousands of tips that come in [daily] to the SEC."

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9:10 a.m.

McKenna said this speaks to issues of "judgment and objectivity" and noted the PCAOB is open to answering questions, including those from journalists.

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8:55 a.m.

Marion E. Koenigs, deputy director in the Division of Enforcement and Investigations at the PCAOB has taken the podium. She is beginning with an explanation of the role of the PCAOB, noting that Dodd-Frank has increased its enforcement responsibilities, especially when it comes to broker-dealers.

"In the 18 years I've been investigating ... fraud, I have repeatedly observed the longer the behavior is undetected," the more harm it does, she said. Koenigs said whistleblowers, thus, provide an important service.  

"Without the benefit of this information, fraudulent schemes can be undetected for years, causing significant harm," she said. 

Koenigs is now reviewing the PCAOB "tips" program. She said there are five categories of complaints -- accounting and financial reporting, auditor conduct, independence violations, cooperation related tips, and some that are completely outside the PCAOB's jurisdiction (she said they forward those to the appropriate regulators).

Regarding Dodd-Frank, she said the whistleblower provision requires the SEC to pay rewards, subject to certain limitations. "It has to lead to a successful enforcement action, and the monetary sanctions collected have to exceed $1 million," she said. 

A whistleblower, she said, must be an individual who voluntarily submits original information. She noted that companies and other entities cannot be whistleblowers under Dodd-Frank's definition.  

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8:45 a.m.

CPA Sherron Watkins has taken the podium. "This issue, and why I flew up in all this cold," she said, "is because it's near and dear to me."

Watkins, who said she was first reprimanded when she commented on what she thought was financial fraud at Enron all the way back in 1996, is giving a chronology of the Enron case.

"People always say to me, why didn't you go outside -- to the financial press, to the SEC," she said. "Even in the fraud I found, my warnings were too little too late." 

Watkins said companies use "a number of tactics" to suppress whistleblowing. "Have you ever heard the saying, a serial killer starts with cats?" she asked, adding that things would have been much different "had the SEC come in and stopped the cat killing before it resulted in financial fraud."  

She said "oppressive" companies never say outright you can't do something. And when it comes to disclosing a potential fraud, she said, it's often like saying "the Emperor has no clothes" when there are many others (the company's auditors) saying he's well-dressed. 

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8:40 a.m.

President Wood introduces Francine McKenna, the panel's moderator.

McKenna will be tweeting during the briefing at http://twitter.com/#!/retheauditors using hashtag #CPAWBlow.

Before introducing Enron whistleblower Sherron Watkins, McKenna said: "The point is we're all faced with the challenge of what to do when we see something wrong," something she added "is more complicated lately."

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8:30 a.m.

NYSSCPA President Margaret A. Wood begins the briefing with a welcome to "what promises to be a thought-provoking breakfast meeting."

Wood noted that the whistleblowing provisions of Dodd-Frank provide a monetary reward to whistleblowers. "This law is changing what we had out there," she said. "We don't know, at this point, how successful it will be."

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What are the implications of the Dodd-Frank Wall Street Reform and Consumer Protection Act for whistleblowing? A panel -- comprised of Enron whistleblower Sherron Watkins, PCAOB enforcement deputy director Marion E. Koenigs, and former SEC Commissioner Paul S. Atkins -- will soon explore this question at the headquarters of the NYSSCPA, at the Society's 10th breakfast briefing. Francine McKenna, a Forbes columnist and author of the re: The Auditors blog, will moderate the discussion.