Final rules regarding the whistleblower provisions of the Dodd-Frank Act have been released by the U.S. Securities and Exchange Commission. The rules are effective as of August 12, 2011 and will apply retroactively to whistleblower tips made since July 21, 2010. If you provide original information about potential securities law violations you can receive a monetary award for that information if it results in a successful enforcement action by the SEC or a related agency.
The rules do not require that employees first report their suspicions to an internal compliance system prior to going to the SEC. This creates an incentive for whistleblowers to skip a company's internal compliance procedures. If this is done, compliance programs would be undermined and companies would not have an opportunity to quickly respond to a problem or self report prior to an investigation. In order to reduce the possibility of whistleblowers skipping internal compliance procedures, the SEC made rules that are intended to encourage the whistleblower to in fact use the company's internal compliance procedure.
Companies now have a strong incentive to encourage whistleblowers to report suspicions internally and promptly respond to reports. Potential whistleblowers should expect to see companies implementing strong internal reporting procedures as well as the latest investigation techniques. Corporate attorneys will be at the ready to protect the company's attorney-client privilege and attorney work product protections by being involved with the reporting and investigation of whistleblower claims. Companies will adapt a proactive approach with regulators to avoid surprises from whistleblowers or the SEC.
One provision of the rules is the 120 day look-back provision. When a whistleblower reports internally, he or she will have 120 days from the date of the internal report to provide the same information directly to the SEC without losing his or her place in line to claim a bounty award. Therefore, companies will have 120 days from receiving a report to do an investigation and determine if they wish to self report to the SEC.
Whistleblowers should expect to see various, easily accessible reporting methods including 24/7 access to anonymous reporting systems like free hot lines, web and email reporting methods and access to company compliance officers.
Training about reporting tools and availability will be emphasized.
Instead of whistleblowers being shunned, they will probably be recognized and praised.
Companies will most likely make it a requirement that all employees must report possible misconduct and violations and certify periodically that they are not aware of securities law violations not already reported.
On the investigation side of things, if the whistleblower identifies him or herself, he or she will most likely be one of the first witnesses interviewed. The whistleblower can expect to be in the loop on communication about the report because management will not want to make the whistleblower feel that no action is being taken.
Company attorneys will most likely conduct investigations or at least supervise the investigators doing the investigation. This is because the company will want to preserve and protect the company's attorney-client privilege and this can only be done if a company attorney is directly involved.
Expect to see more companies making more voluntary disclosures because the SEC will treat the company more favorably if the company has disclosed the wrongdoing before a whistleblower broadcasts the wrongdoing.
Source:
Dealing with tipsters under Dodd-Frank; New SEC whistleblower rules will require companies to examine and restructure their internal compliance programs; Corporate & Business Law, The Wall Street Journal, June 27, 2011
