Washington D.C. May 25, 2011. Today, the Securities and Exchange Commission (SEC) announced rules to implement the whistleblower provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules will have a major impact on the ability of corporate employees to report fraud and protect the integrity of financial markets.
According to the Fact Sheet issued today by the SEC, the Commission rejected corporate-sponsored demands that would have required whistleblowers to report their concerns internally to their employer before blowing the whistle to the government. The NWC strongly opposed these lobbying efforts, spearheaded by the Chamber of Commerce.
The SEC final rule sided with the whistleblowers. According to the
Fact Sheet distributed by the SEC, "The final rules would not require
that employee whistleblowers report violations internally in order to
qualify for an award."
The final rules also adopted a proposal introduced by the NWC that would
fully protect employees who voluntarily chose to report concerns
internally.
The Fact sheet explained its new rule permitting internal reporting as
follows:
[T]he rules strengthen incentives that had been proposed and add certain
additional incentives intended to encourage employees to utilize their
own company's internal compliance programs when appropriate to do so.
For instance, the rules would: Make a whistleblower eligible for an
award if the whistleblower reports internally and the company informs
the SEC about the violations.
Stephen M. Kohn, Executive Director of the National Whistleblowers
Center (NWC), issued the following statement:
Today, investors and whistleblowers scored a major victory. The SEC
refused to buckle under tremendous pressure from Wall Street lobbyists
(led by the Chamber of Commerce) who worked overtime trying to undermine
historic corporate whistleblower protections contained in the
Dodd-Frank Act.
Central among the Chamber's demands were its insistence that the SEC
place strict prohibitions on the right of employees to directly contact
the SEC and law enforcement when they witness serious corporate fraud.
The National Whistleblowers Center, along with thousands of citizens
and numerous other public interest groups, strongly opposed these
efforts. The SEC heard our voices. The Chamber's central demand
was rejected.
The SEC also adopted a path-breaking proposal suggested by the NWC.
Instead of restricting an employee's right to blow the whistle, the SEC
has given employees a choice. Employees can either contact the
government or work with their internal compliance programs (or do
both). Employees who contact their internal compliance programs will be
eligible for rewards if those contacts result in successful enforcement
efforts by the SEC. In other words, employees can be rewarded if they
report fraud internally or if they can contact the SEC directly. This
rule makes perfect common sense.
The Dodd-Frank Act was designed to encourage employees to report fraud.
The law, if properly administered by the SEC's Whistleblower Office,
will result in the detection of multi-million dollar frauds and will
create the enforcement hammer needed to make real change in the culture
of corruption that fostered fraudsters like Bernie Madoff and led to
countless Wall Street debacles, costing innocent investors trillions of
dollars.
Although the Commission did not adopt all NWC proposals, the
Commission's rejection of the Chamber of Commerce's attempt to undermine
the Dodd-Frank Act was a significant achievement for whistleblowers.
The National Whistleblowers Center (NWC) has also been heavily involved
with the rulemaking process, trying to ensure that the final rules
adequately protect whistleblowers. The NWC Executive Director and legal
staff have met personally with each Commissioner in order to explain
the detailed public comments and to rebut arguments raised by the
Chamber. The NWC filed on-the-record nine formal public comments
addressing every major aspect of the rule.
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