SEC reaches out over whistleblower rules

Nov 05, 2010
<p>The SEC has released its rule proposal for whistleblower compensation</p>

SEC reaches out over whistleblower rules

The much anticipated rule-making proposal on whistleblower compensation has been released by the SEC. The 181-page document raises dozens of questions and addresses most of the concerns raised about the highly-controversial regulation passed as part of the Dodd-Frank legislation.

The proposal is likely to attract a flood of comments from corporate issuers and compliance professionals who are concerned that the rules will damage internal reporting systems and foster an environment that encourages running to regulators for personal gain rather than fixing and addressing inefficiencies.

SEC commissioners and staff seem to be sensitive to these concerns and were open about the potential issues in statements accompanying the release of the proposal. ‘This has the potential to reshape the corporate compliance landscape in undesirable ways,’ commissioner Kathleen Casey said.

Companies will have the opportunity to help the SEC define exactly what whistleblower means and what constitutes ‘original’ information. The proposal seeks to limit the categories of people who qualify as whistleblowers and are eligible for awards. As it is written lawyers, compliance staff, auditors, accountants and other individuals with access to privileged information will not be eligible for compensation from the SEC.

This is important because the payouts can be substantial with maximum potential payments of 30 percent of settlements. With some recent cases resulting in fines exceeding $100 million and individual or group stands to make tens of millions.

The focal point of the rule is a 90-day ‘grace period’ that would allow employees to report problems internally and still remain eligible for SEC awards. In addition, the proposals asks about eligibility of those involved in violations and restricts anonymity with a view to limiting spurious or ‘low value’ reports.

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