By Mark S. Nelson, J.D.
The full House passed a bill to establish a whistleblower program at the Public Company Accounting Oversight Board. The PCAOB bill was approved by voice vote, but it did draw some criticism because of its potential to upset the auditor-client relationship. Meanwhile, the House passed a continuing resolution that would fund financial regulators such as the SEC and the CFTC until Congress can enact comprehensive appropriations legislation.
PCAOB whistleblowers. The PCAOB Whistleblower Protection Act of 2019 (H.R. 3625), sponsored by Rep. Sylvia Garcia (D-Texas), would establish a whistleblower tip and reward program at the PCAOB. The bill is modeled after the Dodd-Frank Act whistleblower provisions applicable to the SEC.
House FSC Chairwoman Maxine Waters (D-Calif) noted that the PCAOB program will mirror the successful SEC program and help to ensure informative, accurate, and independent financial reports. House FSC Ranking Member Patrick McHenry (R-NC) emphasized that the amended bill includes a provision urging the PCAOB and the SEC to coordinate efforts in order to leverage the SEC’s expertise and to ensure that the program will be cost-effective.
The bill, however, drew criticism from Rep. Bill Huizenga (R-Mich) who warned that a separate PCAOB whistleblower program could threaten the auditor-client relationship. Specifically, he said audit personnel may seek bounties in a manner that could put the audit process at risk. The representative also questioned whether the PCAOB program would be redundant in light of the SEC’s whistleblower program and whether the PCAOB may have to divert resources to fund the program.
The bill’s sponsor, Rep. S. Garcia, replied that the PCAOB program was needed as evidenced by the many groups who urged passage of the bill. She also said the costs of the program would be offset by fees collected by the PCAOB. Earlier in the debate, Rep. Garcia emphasized that the post-Enron Sarbanes-Oxley Act reforms were the catalyst for the later SEC whistleblower program. The PCAOB program, she added, would help to ensure that investors continue to view U.S. markets as stable and transparent.
The bill would define "whistleblower" to mean any person, or two or more persons acting jointly, who provide information about violations of PCAOB or securities rules for audits or professional standards. A special rule would ensure that whistleblowers are protected from retaliation by their employers. Significantly, the definition does not specify to whom whistleblowers must report information about violations, a nod to the issues faced by the SEC regarding the Supreme Court’s interpretation in Somers that the Dodd-Frank Act provision for the SEC requires a report to the SEC in order to invoke the anti-retaliatory protections of the Dodd-Frank Act. The House has passed legislation (H.R. 2515) by a vote of 410-12 to reverse the holding in Somers.
Much like the SEC’s whistleblower program, a PCAOB whistleblower who provides original information to the PCAOB could receive between 10 to 30 percent of any monetary sanctions collected in an enforcement action. "Original information" would have the same meaning as the Dodd-Frank Act provision for the SEC. "Covered proceedings" would include those proceedings initiated after enactment and which result in monetary sanctions of more than $250,000.
Government funding. The Continuing Appropriations Act, 2020, and Health Extenders Act of 2019 (H.R. 4378) is a continuing resolution (CR) that would keep the government open through November 21, 2019 by extending funding for financial regulators at levels contained in the Consolidated Appropriations Act, 2019 ($1.675 billion for the SEC; $268 million for the CFTC). The House passed the CR by a vote of 301-123 and the Senate is expected to consider the bill soon.
“I regret that the Senate has not done its work. They have not passed a single appropriations bill,” House Majority Leader Steny Hoyer (D-Md) told members on the floor. House Appropriations Committee Chairwoman Nita Lowey (D-NY) told members the CR did not contain poison pill provisions. In a separate press release, Rep. Lowey stated that “[o]nce the CR is enacted and the Senate advances their appropriations process, Democrats will negotiate responsible spending bills that uphold our values and give working families a better chance at a better life.”
Ranking Member Kay Granger (R-Texas) tweeted her support for the CR and, in attached remarks, lamented that the appropriations process had broken down and threatened another government shutdown. She also noted that the CR continues funding for the Committee on Foreign Investment in the United States (CFIUS) which is tasked with, among other things, monitoring Chinese economic influence in the U.S.
Previously, Congress enacted the John S. McCain National Defense Authorization Act for Fiscal Year 2019 with its significant reform provisions for CFIUS. Subtitle A of Title XVII of the NDAA conference report contains the Foreign Investment Risk Review Modernization Act (FIRRMA), which expanded CFIUS’s authority to review mergers and acquisitions that involve foreign acquirers of U.S. businesses. Many of the new provisions were thought necessary because of strategic acquisitions in the U.S. by Chinese firms.