Clearly, it’s been a busy week for the commission.
All eyes are on the SEC this morning as the regulator holds a public meeting to vote on whether to adopt rules surrounding disclosure and reporting of conflict minerals under section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection act. If approved, this rule could ignite more state regulation and require additional reporting from companies.
Conflict minerals (tungsten, gold, tin) are used in many consumer devices, such as cellphones, iPods and gaming systems. These minerals are mined in the Republic of Congo, which is notorious for human rights violations. Under section 1502, publicly traded companies will have to provide an accurate report to shareholders and regulators of where their minerals were obtained; some experts argue that this type of disclosure can have a twofold effect on the governance of a business.
According to Paul Griffin, a professor in the UC Davis Graduate School of Management, the provision ‘seeks to expand transparency and eliminate trade in US companies’ use of conflict minerals’. While this is one of the many purposes of Dodd Frank, Griffin’s study, Supply Chain Sustainability: Evidence on Conflict Minerals, points out that, if approved, these new rules will directly impact shareholder value and trigger a series of costly measures. The results of the study suggest there will be ‘distinct implications for corporate social responsibility disclosure, for they show that legislators’ and stakeholders’ demands for increased social transparency can be highly costly to shareholders when the disclosure rules induce significant changes in management and customer decision making.’
The commission is expect to release the results of the vote by midday.
In other SEC news, yesterday the federal watchdog announced a $50,000 payout to a whistleblower who helped track down a multi-million dollar fraud scheme. This cash incentive marks the first payout from the SEC’s year-old whistleblower program.
Last year, the regulator adopted the new program to encourage employees to come forward with any knowledge of corporate misconduct. And the reward? The SEC will pay up to 30 percent of any recovery or monetary sanctions of over $1 million to those who provide tips leading to successful enforcement.
In this case, the anonymous whistleblower supplied documents and critical information that led the SEC’s investigation ‘to move at an accelerated pace and prevent the fraud from ensnaring additional victims,’ the commission says. With the whistleblower’s help, the regulator slapped the company with $1 million in sanctions. So far, approximately $150,000 has been collected.
Most observers see this as a fairly modest first award. ‘The SEC has been processing whistleblower cases with settlements in excess of $1 million since August 2011 and there are hundreds of these cases in the pipeline,’ says Ed Ellis, co-chair of Littler Mendelson’s Whistleblowing & Retaliation Practice. ‘Going forward, we are likely to see much larger bounties issued by the SEC. The big question, however, for business is whether modern compliance systems are able to detect and remedy misconduct before it goes to the government.’
The SEC denied a claim from another individual seeking an award, in the same matter, because the information provided did not aid the SEC’s enforcement action.
