Senator Grassley asks the SEC about “loose lips” memo, commitment to reform and receptiveness to whistleblowers
May 5, 2009
Via Electronic Transmission
The Honorable Mary L. Schapiro
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Dear Chairman Schapiro:
Thank you for your recent commitment to fully implement by this month the recommendations contained in the 2007 joint Judiciary and Finance Committee report on the Pequot Capital Management investigation. Your initiative to re-examine how the Commission reviews external whistleblower complaints in light of the failure to recognize and pursue warnings in the Bernard Madoff case is a much-needed additional step toward reform of the SEC. However, I am writing today express my concern about the atmosphere and culture at the SEC regarding support for whistleblower disclosures by internal SEC employees. In particular, I am concerned about a memorandum that was sent to SEC employees on April 2, 2009 entitled “Loose Lips Sink Ships.”
The memorandum (attached) warned against disclosing nonpublic information without prior authorization from the Commission. It emphad that “all information” acquired in the course of SEC employment should be considered “nonpublic” unless the information has been published by the media or disclosure has been approved by a supervisor. Although some information certainly must be kept confidential in order for the SEC to effectively enforce the federal securities laws, “all information” is certainly too broad a standard and is likely to chill SEC employees from exercising their rights under the U.S. Constitution and whistleblower statutes to communicate information aboutwaste, fraud, abuse, and mismanagement to Congress. SEC employees have the right to
talk to Congress and provide Congress with information free of agency influence and without fear of retaliation. These rights are protected by the First Amendment to the U.S. Constitution, by 18 U.S.C. § 1505, by 5 U.S.C. § 7211, and by P.L. 111-5 § 714. Failure to qualify the “Loose Lips” email with recognition of employee rights to communicate with Congress threatens to cut off a vital supply of candid, unfiltered information to lawmakers by intimidating employees into silence.
I am requesting that you give serious consideration to supplementing the April 2, 2009 memorandum and all future such memoranda with an explicit recognition of SEC employees’ whistleblower rights and an acknowledgment of the SEC’s responsibilities to respect and protect such disclosures. Please direct any questions concerning this request to Jason Foster of my staff at (202) 224-4515, and any formal correspondence electronically in PDF searchable format to Brian_Downey@finance-rep.senate.gov.
Thank you for your prompt attention to this matter.
Charles E. Grassley
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