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SEC Creates $452 Million Fund For Whistleblowers

In a report submitted to Congress, the Securities and Exchange Commission (SEC) said it has reserved $452 million to fund the agency’s new whistleblower program, as provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Annual Report on Whistleblower Program details the steps the SEC has undertaken to pay whistleblower awards and enhance the anti-retaliation protections available to whistleblowers. Under the new law corporate whistleblowers who divulge “original” information to the SEC about possible securities violations can earn from 10% to 30% of fines over $1 million obtained by the commission.

The Fund will also be allocated towards the operations of the SEC Office of the Inspector General’s suggestion program, the report says. The suggestion program will allow SEC employees to make recommendations for improving procedures within the SEC and report allegations of waste, abuse, and misconduct within the agency.

Critics of the new whistleblower program have argued that employees should not be encouraged to bypass internal corporate procedures, as established under the Sarbanes-Oxley Act of 2002, to report suspected wrongdoing. Corporate attorneys from Arent Fox LLP and Baker Donelson Bearman Caldwell & Berkowitz PC have submitted letters to the SEC expressing such concerns by noting that the “program will undermine internal efforts to detect and fix problems by giving employees incentive to take their complaints to regulators first,” the Wall Street Journal reported. The National Whistleblower Center (NWC) responded to the lawyers’ recommendations in a letter to the agency noting that internal corporate whistleblower procedures would limit the awards for whistleblowers and ultimately discourage employees from exposing wrongdoing to the government. The NWC said: Any rule that would allow a corporation to make whistleblower protection contingent on compliance with an internal reporting scheme would illegally limit and chill the right of employees to anonymously disclose information to law enforcement agencies. 

On November 4, the New York Post reported that the SEC has proposed new rules limiting who is eligible to participate in the new whistleblower program. Under the proposed rules, lawyers, auditors, and internal compliance personnel are excluded from possible whistleblower payments. SEC chair Mary Shapiro said people “who mastermind the very crime they are reporting” will not be able to participate in the new whistleblower program.

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