The Securities and Exchange Commission is taking a look at the backlash in corporate America over the increased whistleblower regime. As with all new regulations, businesses will change practices to meet the requirements and take steps to lessen the impact. According to a story in the Wall Street Journal, the SEC is looking at these practices.
The 2010 Dodd-Frank financial-reform bill granted a financial incentive for whistleblowers. A tipster can get between 10% and 30% of the penalty collected if their information leads to an SEC action. The whistleblower program handed out an award for more than $30 million last year that caught the attention of many.
The Dodd-Frank whistleblower regulations prohibit companies from interfering with employees reporting potential securities-law violations to the SEC. But the SEC did include a provision in the regulations that promoted talking to the company first.
As you might expect companies want to lessen the chances that an employee that notices a problem will go running to the SEC. A case in point is the recent claim of impropriety and then recant by a compliance officer at Cabot Lodge Securities. The specific details of those transactions were redacted in the complaint so we don’t know exactly what happened. It looks like the whistleblower did not know all of the facts and shot off an errant complaint.
Company’s counters to these problems apparently are taking many forms. I assume a few will catch the SEC’s attention and will find them unacceptable. Prohibiting an employee from telling the government about wrongdoing is going to be a problem.
Requiring an employee to turn over any compensation from government probes to the company is an interesting approach. It removes the financial incentive for participating in the whistleblower program. There are other situations where employees are required to turn over compensation to the company. Those are generally situation where the employee has done something good.
I’m sure there is a wide assortment of severance arrangements. I assume the concern is that there could be a situation where a company paid-off an employee with a rich severance to prevent the employee from reporting a problem to the government.
I’m sure there will be more from this in the future.
Sources:
- SEC Probes Companies’ Treatment of Whistleblowers by Rachel Louise Ensign in the Wall Street Journal
- Is Anything Fishy With The SEC’s Whistleblower Inquiries? by Keith Paul Bishop in California Corporate & Securities Law
- The SEC Will Be Your Employment Law Agency, Too by David Smyth in Cady Bar the Door
- In a twist, ex-Cabot Lodge compliance officer recants, says he was wrong by Bruce Kelly in Investment News