31 May. 2011 | Comments (0)
- The information is sufficiently specific, credible and timely to cause the Commission to open a new examination or investigation, reopen a closed investigation, or open a new line inquiry in an existing examination or investigation.
- The conduct was already under investigation when the information was submitted, and the information significantly contributed to the success of the action.
- The whistleblower reports original information through his or her employer’s internal whistleblower, legal, or compliance procedures before or at the same time it is passed along to the Commission; the employer provides the whistleblower’s information (and any subsequently-discovered information) to the Commission; and the employer’s report satisfies the other whistleblower requirements.
- SEC Adopts New Rules to Encourage Whistleblowers, Martin Lipton, Steven A. Rosenblum, John F. Savarese, Wayne M. Carlin, Karessa L. Cain of Wachtell, Lipton, Rosen & Katz, May 26, 2011. Excerpt: One of the most actively debated aspects of the new whistleblower program has been whether individuals should be required to report possible violations via a company’s internal compliance processes before going to the SEC with the information. (See our memorandum of November 19, 2010 here.) Many companies and other commentators have suggested that companies should be afforded an opportunity to investigate and address potential violations, and they have expressed concern that the new rules will undermine the effectiveness of internal reporting and compliance programs and the ability of companies to detect, address and prevent instances of corporate misconduct. The possibility of SEC payments could also motivate whistleblowers to delay reporting violations internally or otherwise interfere with internal compliance processes in order to enhance the likelihood of a bounty payment from the SEC. … The active participation of employees and others who are best positioned to detect wrongdoing and alert their company to early warning signs is an essential component of an effective compliance program. Notwithstanding the new whistleblower rules, and the unfortunate incentives they may create to bypass internal reporting, it remains as important as ever to continue to develop and promote a robust internal compliance program.
- A Divided SEC Issues Final Dodd-Frank Whistleblower Program Rules, Jordan Eth, Randall Fons, and Justin Hoogs, Morrison & Foerster, May 25, 2011. Excerpt: There is little doubt that the new whistleblower program will result in increased SEC enforcement activity. But it is likely that the program, especially as now structured, will also cause an uptick in tips and complaints being provided to companies’ internal compliance programs and hotlines. As a result, companies should review and update their compliance and ethics programs to ensure their programs allow them to identify, investigate, and handle possible misconduct quickly and effectively. In investigating or reviewing whistleblower tips or concerns, companies should be aware that their actions, both before and after the information is received, may well be reviewed by the SEC with the benefit of hindsight. As a result, a plan of action for dealing with tips or concerns must be well-designed and effective. Companies should also reinforce the message to employees that adherence to the securities laws is a consistent and core value, and that concerns will be taken seriously. Experience with other statutes suggests that whistleblowers are often employees who raised concerns internally and felt that issues were not adequately addressed by their employers. When an SEC investigation is instituted, a company is often in for a long and difficult period. Understanding how to deal with whistleblowers and the concerns they raise can minimize the disruption and expense that begins when the SEC enforcement division comes calling.
- SEC Adopts Whistleblower Rules, Cydney Posner of Cooley Morgan & Lewis, May 25, 2011. Excerpt: As I emailed yesterday [May 24], the proposal has been quite controversial, and that controversy continued into today's meeting, with both Commissioners [Kathleen] Casey and [Troy] Paredes voting against adoption. In particular, as noted yesterday, the issue of whether the SEC should mandate prior or contemporaneous internal compliance reporting has been extremely contentious, with some arguing that mandatory internal reporting might deter some whistleblowers and others contending that allowing whistleblowers to bypass the entities' internal compliance programs would undermine the ability of these entities to identify and promptly remediate fraud or other wrongdoing, especially if the bad acts were not ultimately within the province of the SEC. According to the majority, the rules have successfully calibrated the balance on this and other challenging policy issues: The SEC did not opt to mandate that whistleblowers report through an entity's internal compliance program as a condition to receiving awards, instead leaving that decision in the hands of each whistleblower; however, as discussed below, the final rules did increase the incentives for internal reporting. The SEC believed that the optimal approach was to encourage internal reporting where appropriate, but, where inappropriate, to allow the individual whistleblower to make that determination.