Could SEC Whistleblower Bounty Program Harm Internal Compliance?

by Gary Larkin for The Conference Board Blog, November 8th, 2010.

Although nearly everyone — including the five SEC commissioners — agrees that corporate whistleblowers are the best source for detecting corporate fraud, there is trepidation about the proposed whistleblower bounty program under the Dodd-Frank Act. Many are concerned that the SEC program could undermine or bypass successful corporate compliance programs.

In fact, the SEC staff in its official proposed whistleblower rule released for comment last week addresses this issue:

“We emphasize, however, that our proposal not to require a whistleblower to utilize internal compliance processes does not mean that our receipt of a whistleblower complaint will lead to internal processes being bypassed. We expect that in appropriate cases, consistent with the public interest and our obligation to preserve the confidentiality of a whistleblower, our staff will, upon receiving a whistleblower complaint, contact a company, describe the nature of the allegations, and give the company an opportunity to investigate the matter and report back.”

The deadline for public comments is Dec. 17. To read the proposed rule and comment on it, click here. By the way, one of the most important parts of the SEC proposal is an application for award on Page 173 of the 181-page document.

During last Wednesday’s unanimous vote to propose the rule, SEC Chair Mary Schapiro justified the creation of the whistleblower program and the Investor Protection Fund, which thanks to the Dodd-Frank Act now has $451.9 million. [Read’s blog post on the fund.]

“Eight years ago, when Congress passed Sarbanes-Oxley [Act], it recognized the importance of whistleblowers,” Schapiro said. “Through Dodd-Frank, Congress has expanded the whistleblower program. We get thousands of tips every year. But the fact is few come from those close to the fraud [that was committed].” (continue reading… )



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