SEC gears up to finalize new whistleblower rules

Reuters News
Posted: May 25, 2011 1:17 PM
SEC gears up to finalize new whistleblower rules

By Sarah N. Lynch

WASHINGTON (Reuters) - Whistleblowers who provide substantive original tips leading to large-scale enforcement actions can get financial rewards under a new program about to be approved on Wednesday by the U.S. Securities and Exchange Commission.

The program, has proven to be among the most contentious new regulations that the SEC has tackled so far as it works to implement nearly 100 new rules under the Dodd-Frank Wall Street overhaul law.

Companies from Google Inc and Microsoft Corp to General Electric Co and JPMorgan Chase & Co have asked the SEC to require whistleblowers to first report problems internally amid concerns they may be tempted to skirt company compliance programs to get a big payday.

But the SEC did not give into the demands by big public companies, instead making more changes to the final rule that aim to encourage internal reporting without mandating it.

Under the final rule, whistleblowers who provide original tips leading to sanctions exceeding $1 million can be eligible for between 10 percent and 30 percent of a reward.

To promote internal reporting, the SEC has added some features to the rule such as making a whistleblower eligible for a reward if he or she reports wrongdoing to the company and the company, in turn, reports it to the SEC.

Another change in the final rule, meanwhile, would let employees be treated as a whistleblower in the SEC program starting on the date they reported the problems internally, as long as the same tip is provided to the SEC within 120 days.

Finally, whistleblowers who provide tips internally first may be considered for higher awards.

Certain employees would be ineligible for the program, including independent public accountants; attorneys, including in-house counsel who obtained information from client engagements; anyone who obtained the information unlawfully; foreign government officials and those who learn about violations through a company's internal compliance program.

Certain company officers, trustees or partners who learn about violations from other employees or through things such as a company hotline would also be excluded from the program.

Exceptions could be made for compliance and audit employees, however, if certain conditions were met. For instance, if 120 days have passed after it was properly reported or if they feel the company will impede the investigation, then they may qualify for the program.

The U.S. Chamber of Commerce has warned it may legally challenge the rule, saying the proposal would create a "bounty program" that rewards "amateur sleuths in search of a big payday."

Until now, the SEC has been more limited in its ability to give whistleblower rewards, which were restricted to insider-trading cases.

(Reporting by Sarah N. Lynch; Editing by Maureen Bavdek)