New Whistle-Blower Guidelines Issued

Last year, the Dodd-Frank act was passed to overhaul the financial regulatory system, includes a provision under which in certain instances the SEC will pay bounties to individuals who report corporate wrongdoing.  This past week, the SEC announced the new rules for the program.  Under this new program, whistle-blowers could be paid 10-30% of fines or recoveries over $1 million.  These new rules will come into effect 60 days after they are published in the Federal Register.

One of the more controversial aspects of the new program is that there is no requirement for a whistle-blower to report their information to internal sources within the company prior to going to the SEC.  The U.S. Chamber of Commerce worries that the promise of large paydays will spur workers to  run to the SEC with allegations of wrongdoing, bypassing the anonymous  hotlines and other mechanisms companies put in place after the 2002  Sarbanes-Oxley law.  David Hirschmann, with the U.S. Chamber of Commerce, said, “Not informing the company of a potential fraud and waiting for the SEC to act is the equivalent of not calling the firefighters down the street to put out a raging fire.”

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