SB 783 Would Punish Execs Who Cover-Up Fraud, Protect Whistleblowers

Sacramento– Legislation (SB 783 — Escutia) passed (9-0) by the Assembly Judiciary Committee today would penalize corporate executives, and others with access to key financial information, who know of, but stay silent about, financial fraud within their corporation. The bill (formerly SB 1452), which is sponsored by the Foundation for Taxpayer and Consumer Rights (FTCR), also adds new protections for employees who blow the whistle on corporate scofflaws and creates a statewide, confidential whistleblower hotline.

Recently signed federal legislation (Sarbanes-Oxley) addresses (though not completely) accounting industry reform and oversight, some corporate governance and financial reporting issues and increases the penalties on criminal conduct by executives. However, the federal bill lacks a pre-emptive strategy to stop major financial fraud before it gets to WorldCom or Enron proportions.

“This legislation fills major gaps in the federal corporate reform bill to ensure that California has an early warning system to protect against the next Enron or WorldCom,” said FTCR’s senior consumer advocate, Doug Heller. “We need to institute a new ethic in corporate culture, in which executives who know of fraud immediately stop it internally or report it to the authorities. We are urging Governor Davis to support this bill and make California the nation’s safest state for pensioners and employees.”

SB 783 will:

• Provide new protections to employees who refuse to participate in illegal activity or blow the whistle on illegalities at their company or organization.
• Establish a Whistleblower Hotline to provide employees with confidential access to law enforcement authorities.
• Impose up to $100,000 fines executives, directors and upper-level financial managers who cover up accounting fraud.
• Impose up to $1 million fine on corporations that withhold information about financial fraud.

Whistleblowers supporting the legislation pressed for the creation of a safe-haven for employees who wish to come forward with information about company wrongdoing. They also spoke of the need for stronger sanctions against employers who retaliate against employees who expose company wrongdoing.

Charles Quinones, who was fired from his jobs as a security police officer at Lawrence Livermore National Laboratory after raising concerns about the security of the facility’s nuclear materials, said:

“I was fired for being a whistleblower. My hope is that others will not be punished for protecting the public interest against their employer’s wishes, as I have been. The whistleblower hotline will create a channel for individuals like myself to come forward and the end result will be that organizations put more effort into making moral and ethical decisions that effect the public.”

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