Whistleblower Bounty Program

On May 25, 2011 the SEC voted 3-2 to pass the final rule.  The Chamber issued the following statment: U.S. Chamber Warns New SEC Whistleblower Rule Will Undermine Corporate Compliance Programs ‘The SEC has chosen to put trial lawyer profits ahead of effective compliance and corporate governance’ Read More.

As mandated by Dodd-Frank, the U.S. Securities and Exchange Commission (SEC) proposed rules on the whistleblower bounty program in November 2010.  The Chamber is concerned that the provisions could undermine existing internal compliance programs that the federal government has long-encouraged as an important component of responsible and effective corporate governance.  We have and continue to urge the SEC to consider potential consequences of the rule as proposed.  As reported by Reuters final rules are expected by the end of May.

Facts on the Whistleblower Provisions in Dodd-Frank

  • The “whistleblower bounty program” entitles whistleblowers to an award valued between 10% and 30% of the sanctions imposed in federal securities law enforcement actions that result in at least $1 million in sanctions.
  • An individual must provide “original information” to the SEC in order to qualify for an award.
  • Dodd-Frank also creates a private cause of action in federal court for whistleblowers that experience retaliation by employers in connection with providing information to the government.

Issues/Problems with the SEC Rule

  • The SEC’s proposal provides no incentive for whistleblowers to report allegations of wrongdoing internally.  In fact, there is every incentive for a whistleblower to bypass internal compliance programs altogether and reap the greatest reward possible.
  • No formal information sharing policy is established whereby the SEC provides information to companies accused of wrongdoing.  Thus, securities violations linger unaddressed while shareholder value falters.  
  • Legal, compliance, audit and other fiduciaries have the ability to collect a whistleblower award based on information they are professionally obligated to address.
  • Culpable individuals may also collect a bounty despite their participation in the conspiracy.
  • The proposal lacks clarity with respect to anti-retaliation provisions.  For example, companies may be subject to suit by a whistleblower who was fired for theft of company property or other actionable misconduct but established “whistleblower” status before termination.

Chamber Activity: The Chamber continues to lead the business community’s opposition to the provisions.  In October 2011, we formed a coalition to address the implications of the whistleblower provisions in Dodd-Frank and the SEC’s proposed rules.  In December 2010 and February 2011, we led a delegation of companies to meet with SEC commissioners, SEC Chairman Mary Schapiro, and congressional staff to express our collective concerns with the current proposals.  Throughout the spring, we also continued dialogue with the SEC regarding their proposal and met with CFTC commissioners and CFTC Chairman Gary Gensler on the CFTC’s proposed whistleblower rules.  Furthermore, the Chamber has submitted 4 comment letters signed by the Chamber and over 20 other organizations. 

Congressional Activity:  Congressman Grimm (R-NY) introduced legislation that would help preserve corporate compliance programs and strengthen existing whistleblower provisions in Dodd-Frank. On December 13, 2011 the bill was marked up and passed out of the Subcommittee on Capital Markets and Government Sponsored Enterprises. The full committee will vote on the bill early next year.  Click here to read our comment letter in support of the bill.

Contact Members of Congress:  Ask your Members to co-sponsor and support the Grimm bill.

U.S. Chamber Comment Letters