Corporations and their defense lawyers are complaining about the whistleblower “bounty” provisions of the Dodd-Frank financial reform laws that provide financial incentives for employees to report securities fraud and other wrongdoing to regulators, citing increased costs and undermining of their “internal fraud-detection efforts” and self-reporting to the SEC, according to a Wall Street Journal article by Ashby Jones and Joann S. Lublin called “Critics Blow Whistle on Law.” Whistleblowers should not be permitted to interfere with corporations “blowing the whistle” and “lowering the boom” on themselves, no sir.
These new incentives are similar to existing whistleblower laws in the federal the False Claims Act, which helped the Department of Justice procure a $750 million settlement with GlaxoSmithKline recently. Cheryl Eckard, former Glaxo quality assurance manager who blew the whistle on her former employer, is due to receive $96 million, according to the article.
Dodd-Frank will expand whistleblower rewards to a much larger universe of wrongdoing, including many types of securities or accounting fraud or bribery allegations.
According to the article, “management lawyers” argue that the Dodd-Frank whistleblower provision “offers a financial incentive to ignore a company’s own process and run straight to the government.”
But that argument is belied by the SEC’s rule proposal, which states: “Importantly, the proposed procedures will allow a potential whistleblower to provide information to legal or compliance personnel within his or her company, and wait for up to 90 days, without compromising his or her eligibility for an award under the Program. This would also allow a company a reasonable period of time to investigate and respond to potential securities laws violations (or at least begin an investigation) prior to reporting them to the Commission or an appropriate regulator. Therefore, this approach is consistent with the Commission’s efforts to encourage companies to create and implement strong corporate compliance programs.”
“Some corporate-governance experts say financial incentives are needed to draw out more whistleblowers, especially since internal programs sometimes don’t work. Ms. Eckard, who blew the whistle on GSK, raised concerns internally before being terminated, according to her lawyer.”
Those with inside knowledge of wrongdoing who come forward and assist the Government stand to get between 10% and 30% of a recovery that is over $1 million.
The SEC has released its proposed rules for public comment. Companies and their directors are lobbying regulators to minimize the impact of the provision on the private sector.
Others say companies should offer incentives to encourage employees to report violations internally rather than to regulators. “You can give spot financial awards?$1,000 here and $1,000 there?to people who keep their concerns inside the company,” according to one management lawyer.
Page Perry is an Atlanta-based law firm with an active practice in representing securities industry employees in whistleblower matters and in employment disputes. Recently, the firm has won arbitration award for clients in employment disputes in the amounts of $1.7 and $3.9 million. For further information, please contact www.pageperry.com.