From the Experts: Preparing for Whistleblowers Under Dodd-Frank
Dodd-Frank’s Whistleblower Provisions
The Dodd-Frank whistleblower provisions, codified as Section 21F of the Exchange Act, require the SEC to pay bounties to persons who provide information leading to a successful securities law enforcement action, in which more than $1 million is recovered. Bounties will range from ten to 30 percent of the total monetary sanctions obtained by authorities, with the precise amount to be determined unilaterally by the SEC.
Whistleblowers are not required to inform the company of their concerns at any time, and almost anyone can be a whistleblower, including current or former employees, spouses, consultants, or competitors. Whistleblowers can submit tips anonymously by acting through counsel, and their identity may never be publicly known. Even persons bound by fiduciary duties or ethical obligations can, under certain circumstances, become eligible to receive a bounty for reporting to the SEC.
For example, compliance and internal audit personnel are ordinarily ineligible for bounties, but may qualify if they have a reasonable basis to believe that disclosure may be necessary to prevent substantial injury to the company or its investors, or if the company fails to report a violation to the SEC within 120 days after learning of it. Whistleblowers can even qualify for an award if they obtained their information in breach of civil or criminal law, unless they are convicted of a criminal violation in connection with obtaining the information.
SEC investigations arising out of whistleblower tips may prove more difficult to handle than staff-initiated inquiries, given the potentially active involvement of a financially motivated whistleblower who may push the SEC to undertake investigative steps that it might not otherwise pursue. Indeed, it seems likely that SEC investigations arising from whistleblower complaints will receive a disproportionate amount of staff attention and resources, given the importance of the program and the staff’s sensitivity about previous failures to heed whistleblowers. These factors may also make such investigations, once initiated, more difficult for the staff to close. READ MORE...
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| Posted by Matt Morley and Carol Elder Bruce on Jan 31, 2012 | ||
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