Do Mutual Fund Shareholders Really Want Sarbox Protection?

Lora Bentley

For more than five years now, pundits, politicians and businesses have argued that the Sarbanes-Oxley Act of 2002 should be pared back. Its restrictions are too rigorous and compliance is too costly. So part of me was amused to see The Boston Globe (via boston.com) report on Thursday that consumer groups want Sarbanes-Oxley -- or at least its whistleblower provisions -- extended to protect employees of mutual fund companies.

 

According to boston.com:

...lawsuits have prompted consumer activists to petition the Securities and Exchange Commission to determine that Sarbanes-Oxley's whistle-blower protection requirements extend to fund firms such as Fidelity. The activists wrote to the SEC in late March that the industry's biggest scandals were brought to light by whistle-blowers such as Peter Scannell, who first exposed improper trading activities at his employer, Putnam Investments in Boston. "It is inconceivable that Congress did not intend that mutual fund shareholders enjoy the benefits afforded to shareholders of other publicly traded companies with respect to whistle-blowers," they wrote.

A University of Missississippi law professor cited in the story doesn't think the protection would amount to much. I agree.

Assuming for the sake of argument that Congress did intend to include mutual fund shareholders in the whistleblower protections, here's what mutual fund shareholders should be prepared for, given the government's enforcement history:

One study from the University of Nebraska points out that the Occupational Safety and Health Administration found in favor of whistleblowers in only 13 of 361 cases it reviewed in the first three years after Sarbox became law. Not that that the consumer groups shouldn't be asking for the protection to be extended, of course. However, I do think they should know what they're really asking for before they do.



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