Whistleblower rule clears divided SEC

WASHINGTON Wed May 25, 2011 7:48pm EDT

U.S. Securities and Exchange Commission Chairman Mary Schapiro testifies before the Senate Banking Committee hearing on oversight of Dodd-Frank Wall Street reform and consumer protection implementation, on Capitol Hill in Washington May 12, 2011. REUTERS/Jonathan Ernst

U.S. Securities and Exchange Commission Chairman Mary Schapiro testifies before the Senate Banking Committee hearing on oversight of Dodd-Frank Wall Street reform and consumer protection implementation, on Capitol Hill in Washington May 12, 2011.

Credit: Reuters/Jonathan Ernst

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WASHINGTON (Reuters) - Corporate whistleblowers could score multi-million-dollar payouts for reporting financial wrongdoing under a new program approved by securities regulators on Wednesday.

A divided Securities and Exchange Commission voted 3-2 to finalize the measure that has grown into one of the most contentious requirements of last year's Dodd-Frank Wall Street overhaul law.

Tipsters would be paid between 10 and 30 percent of sanctions over $1 million for original and useful information.

Companies from Google Inc to JPMorgan Chase & Co have expressed fears the whistleblower rule will undermine internal compliance programs at public companies by encouraging employees to go directly to the SEC.

The rule does not require whistleblowers to first, or simultaneously, report problems internally, as companies had sought.

In a concession to companies, the final SEC version would make a whistleblower still eligible for a reward if he or she reports wrongdoing to the company, and the company, in turn, reports it to the SEC.

A whistleblower can also improve the chances of receiving a higher percentage award by internal reporting, but the rule only protects the whistleblower from retaliation if the employee also reports wrongdoing to the SEC.

Business interests such as the U.S. Chamber of Commerce remain deeply unhappy about the rule and could appeal in court. The SEC had put "trial lawyer profits ahead of effective compliance," the chamber said in a statement.

Rewarding whistleblowers has a long history in the United States.

Last year the U.S. Department of Justice gave former GlaxoSmithKline Plc employee Cheryl Eckard a $96 million reward under the U.S. False Claims Act, a Civil War-era law designed to uncover efforts to defraud government programs.

BREAK THE SILENCE

The SEC rule greatly expands the agency's authority to reward whistleblowers. Prior to Dodd-Frank the SEC could only reward whistleblowers for tips on insider-trading cases.

"Today's rules are intended to the break the silence of those who see a wrong," said SEC Chairman Mary Schapiro.

She said the final measure struck the correct balance between encouraging whistleblowers to report problems internally when appropriate, while providing the option of heading directly to the SEC.

SEC enforcement chief Robert Khuzami told the SEC's public meeting on Wednesday that the rule was already encouraging people to come forward. People who provided tips after Dodd-Frank was signed into law last July could be eligible for a reward.

The SEC's two Republican commissioners voted against the rule and raised numerous concerns, from its impact on internal compliance to fears it may inundate the SEC with complaints that do not prove to be fruitful.

"It significantly underestimates the negative impact on internal compliance programs and significantly overestimates our capacity to effectively triage and manage whistleblower complaints," said SEC Commissioner Kathleen Casey.

Supporters of the rule, such as the National Whistleblowers Center, lauded the agency for resisting opposition from corporate lobbyists.

The rule is expected to take effect 60 days after it is published in the Federal Register.

The Commodity Futures Trading Commission is working on a similar rule.

(Reporting by Sarah N. Lynch; Editing by Tim Dobbyn)

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Comments (2)
electric38 wrote:
Which of the insider traders will be the first to step up? Or will one of the world’s fastest supercomputers linked to the market, that banksters (by using our saving and checking interest that they didn’t give us) and hedge funds operators now use, be the first to turn themselves in?
How behind the times can our lawmakers get?
Can our FBI show some activity here? Seems like the effects of most of these trades cross state lines.
Sorry to paint such a dark picture but, these crooks are sooo far ahead of the legal curve… and which of our current lawmakers will be seeking employment with these billionaires after they leave office?

May 25, 2011 12:47am EDT  --  Report as abuse
KimoLee wrote:
“Business interests such as the U.S. Chamber of Commerce remain deeply unhappy about the rule and could appeal in court. The SEC had put “trial lawyer profits ahead of effective compliance,” the chamber said in a statement.” What?????? Aren’t SEC attorneys government employees on salary? Working for the SEC must be one of the least appealing legal jobs out there. I imagine that SEC attorneys avoid the complicated big money defendants because fighting them is detrimental to one’s family and and “costs” tons of money. One of those cases could easily bury an attorney in unintelligible paperwork for years! Regardless, I think the SEC has done a super lousy job. And I doubt their attorney’s themselves “profit” much. What Americans need to know is whether their politicians profit personally from companies the SEC is supposed to regulate. I would bet that is the biggest problem.

Jun 01, 2011 9:48am EDT  --  Report as abuse
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