At the end of May, the SEC voted 3-2 to adopt Final Rules on the Dodd-Frank Whistleblower Bounties. The final rules made modest changes in response to some business community concerns, but expressly declined to require whistleblowers to report violations or concerns under the company's internal policies first in order to be eligible to receive a bounty, which was the primary concern of the business community.*
So, why is this relevant to the Executive Compensation Blog? Because more "whistle blowing" could lead to more SEC enforcement actions and more financial restatements, which could lead to more compensation clawbacks under Dodd-Frank Act Section 954. Section 922 of Dodd-Frank added a new Section 21F to the Exchange Act, "Securities Whistleblower Incentives and Protection," which requires a payment of between 10% – 30% of the amount of monetary sanctions to "1 or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement." (Remember, the SEC settlement with AIG was $800 million, which would have produced a bounty of at least $80 million to some lucky winner and his or her lawyer.)
Instead of requiring whistleblowers to report violations or concerns under the company's internal policy first, in order to be eligible to receive a bounty, the SEC's final rules provide "incentives" for whistleblowers to use the internal reporting program, including:
- A whistleblower's voluntary participation in an internal compliance program is a factor that can increase the amount of the award;
- A whistleblower who reports original information to the company's compliance and reporting program will get credit for all information that is provided to the SEC by the company, regardless of whether such information was included in the whistleblower's report to the company; and
- A whistleblower will be deemed to have reported information to the SEC on the date that he or she made an internal report to the company, as long as the whistleblower or the company then reports that information to the SEC within 120 days of the initial internal report.
For a full discussion of the Whistleblower Regulations, see "SEC Adopts Final Rules to Establish Whistleblower Program."
*David Hirschmann, president and CEO of the U.S. Chamber's Center for Capital Markets Competitiveness, and Lisa Rickard, president of the Institute for Legal Reform, commented that: "In approving this new whistleblower rule, the SEC has chosen to put trial lawyer profits ahead of effective compliance and corporate governance."
On June 30, 1997, the Union Jack was lowered for the last time over Government House in Hong Kong as Britain prepared to hand the colony back to China after ruling it for 156 years. Great place to visit – and do business.