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.
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:
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.
NWC Dodd-Frank Rulemaking page — links to memos from Commissioner meetings, NWC public comments, and other related materials
CNBC Series “Bounty Hunters”
Wall Street Journal “Whistleblower Group Issues Report Saying Cash Incentive Doesn’t Drive Informants to Authorities”
Washington Post “Wall Street Snitch Pitch”
New York Times “For Whistle-Blowers, Expanded Incentives”