Whistleblowing–Are you prepared?

Tucked away in the Dodd-Frank Act is a new whistleblower provision. Under this provision an individual or group of individuals may collect awards of 10% to 30% of judgments or settlements with the SEC over $1 million. Not an insignificant amount of money. What do they have to do to get this reward? The whistleblower must provide:

  • original information from the whistleblowers independent knowledge or analysis
  • not already known to the SEC
  • not derived from an allegation in a judicial or administrative hearing, governmental report, hearing, audit or investigation or a news report
  • must be provided to the SEC for the first time after July 21, 2010 (Proposed Rule 21F-4(b))

How can you as the CCO make sure that the glimmer of money does not stall your compliance program?

The proposed rules for the most part protect the CCO from attorneys and other compliance staff becoming whistleblowers.  But how will you prevent other employees from divulging information directly to the SEC? How will you keep this information from going to the SEC before you have a chance to conduct an investigation?

The CCO needs to raise this concern with legal and human resources. All groups should consider steps that aim to protect the firm from having information leaked before appropriate internal investigations can be conducted and the issues resolved and if necessary reported to the appropriate regulator.  These steps must focus on pre-reporting guidelines. Once the employee becomes a whistleblower there cannot be any activity that appears to be retaliation.

Copyrighted 2011 Sharon M. Davison

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