Securities Docket produced a webcast “Corporate Compliance after Dodd-Frank: One Voice; How Many Masters?” that focused on the SEC’s proposed new whistleblower rules and their implications for internal controls and compliance programs, investigations, self-reporting incentives and employer/employee relations, including executive compensation and employee reporting responsibilities.
- Byron Egan, Partner Jackson Walker L.L.P.
- Jeffrey Sone, Partner Jackson Walker L.L.P.
- Gary Kleinrichert, Senior Managing Director FTI Consulting
Section 922 of Dodd-Frank provides an expanded whistleblower program that allows the whistleblower to get part of the money paid to the SEC for the violation.
There is a lot of gnashing of teeth among compliance professionals because this provision would encourage an employee to ignore internal complaint processes and head directly to the Feds. Those internal whistleblowing program came out of Sarbanes-Oxley, the legislation enacted as a result of the last financial crisis.
The new program is not applicable to private companies that are not subject to registration under the Securities Act of 1934. Section 922 of Dodd-Frank is an amendment of that law.
Employees with a legal, compliance, audit, supervisory or governance responsibility have limited eligibility for the whistleblower bounty. They are not eligible if the information was communicated to them with the reasonable expectation that they would take steps to respond to the violation. They are then eligible if the company does not disclose the information to the SEC within a reasonable time or proceeds in bad faith.
In prognosticating the impact, we can look at the False Claims Act which has a similar whistleblower bounty program. Under that legal framework, most people don’t report to the government until they have given their company a chance.
Much of the whistleblower program is in SEC Release 34-6323. Comments are open until December 17, 2010. Certainly, the proposed rule could change significantly bases on the comments.