Opalesque Industry Update - A new client alert from law firm K&L gates shows that the Securities and Exchange Commission recently paid $14 million to an unidentified informant under the Dodd-Frank whistleblower program. Although the particular enforcement action was not identified, the SEC said the whistleblower’s tip led to a substantial recovery of investor funds. Given that awards can range from 10 to 30 percent of the money collected in a case, this recovery was therefore in the range of $67 million to $140 million. Notably, the tip enabled the SEC to respond exceptionally quickly ─ its enforcement action was completed in less than six months. It has been widely anticipated that the Dodd-Frank whistleblower program would enhance the speed and effectiveness of the SEC’s enforcement efforts by eliciting high-quality information about securities violations. Although whistleblower tips have been flowing to the SEC at the rate of a dozen each business day, this award was only the third since the program took effect in August 2011. Awards of approximately $50,000 and $125,000 had been made in two previous cases. Now that the program is up and running, the SEC staff has suggested that it will be making awards more frequently, including awards of significant amounts. There is little doubt that the agency’s $14 million award, together with substantial future awards, will do much to generate public awareness of, and greater participation in, the whistleblower program. Of course, nothing can prevent a company from becoming the subject of a whistleblower report to the SEC. Under Dodd-Frank, corporate personnel are not required to report their concerns to the company before contacting the SEC or at any other time. Moreover, almost anyone can be a Dodd-Frank whistleblower: competitors, former employees, investors, consultants, former spouses and significant others. That said, companies can take steps to reduce their risks in this regard by assuring that it has systems for its personnel to report instances of potential wrongdoing that those systems are well publicized and easy to use, and that individuals with concerns about improper conduct are encouraged to bring them to the company’s attention. One starting place for such efforts can be to review company policies on internal reporting. Companies contemplating these issues should consider the following options:
There is no simple formula for establishing an internal reporting process that employees will use in lieu of taking their concerns elsewhere. Good policies and procedures are only a starting point, but the more difficult task may be creating confidence among corporate personnel that the company will evaluate their concerns fairly, and that raising a concern in good faith will not put their jobs at risk. As difficult as these efforts may be, Dodd-Frank’s whistleblower provisions make it more likely than ever that there will be significant negative consequences for companies that fail to implement effective internal reporting systems. If a company does not discover and address potential misconduct by its personnel, the chances are now very much increased that the SEC will uncover and take the initiative in resolving it. BM
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Industry Updates
SEC pays $14m to Dodd-Frank whistleblower after tip leads to rapid enforcement action
Tuesday, October 08, 2013
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