Patrick Gnazzo and Donna Boehme – Compliance & Ethics Professional – August 2011
There’s a new sheriff in town, and he’s carrying a whistle. After more than 240 comment letters and 1,300 form letters, countless hearings, and a 3-2 vote by the Securities and Exchange Commission (SEC), the new Section 922 Dodd-Frank whistleblower bounty rules were finally published in May 2011. Not that whistleblower laws are anything new to Corporate America—both the False Claims Act and Sarbanes-Oxley created specific protections for insiders who report suspected misconduct. Yet the sheer scale of the potential financial incentives (i.e., 10%-30% of sanctions resulting from successful securities law prosecutions in excess of $1 million) should, without question, raise the bar for companies to seek out and correct wrongdoing quickly and effectively before employees feel the need to bypass their companies’ internal reporting systems and take their concerns directly to the SEC’s new whistleblower line. The question companies should be asking themselves in the world of Section 922 is, “Is our internal reporting system trusted by our employees and supported by our management, and if not, how do we enhance it so it is the preferred mechanism of choice for our employees?”
Some have dubbed the new rules a “game-changer,” but in truth, nobody really knows where the moving parts will land, and what the SEC will actually do with the “tip a day” calls (and reportedly, higher quality tips) that it is receiving. What triage process will the agency use, what feedback will subject companies receive, and how will the investigation process be managed? And just as importantly, will the SEC treat “good” companies (the ones that have taken demonstrable steps to root out wrongdoing) from “bad” companies (the ones with no compliance program, or a program in name only). We will no doubt learn more about the SEC’s process for dealing with the rising number of whistleblower calls over the coming months.
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