As previously reported on Subject to Inquiry, last November the SEC proposed a new whistleblower program under the Dodd-Frank Wall Street Reform and Consumer Protection Act that promises handsome awards for whistleblowers who come forward with information about possible violations of the federal securities laws. At the time, and in preparation for drafting a final set of rules, the Commission sought public comment on the proposed whistleblower program. According to Tom Sporkin, head of the SEC’s Office of Market Intelligence and the man behind the proposed whistleblower program, the most heated debate among commenters has been whether the final rules should require would-be tipsters to make use of internal reporting mechanisms in order to qualify for an award through the Commission’s whistleblower scheme.
And although the window for public comment closed on December 17, the debate continues. As Jessica Holzer reported yesterday, many large U.S. companies are still “prodding” the SEC to require workers to report wrongdoing internally before going to the Commission. These companies insist that the proposed SEC whistleblower scheme will undermine robust internal compliance and reporting programs. For months companies have urged the SEC to see things their way, and it sounds like they will continue to press the Commission to include an internal reporting requirement.
Others – including a number of plaintiffs’ attorneys – implore the Commission to reject an internal reporting requirement. They say alerting companies to securities laws violations internally will only afford companies time to cover up the wrongdoing. And, of course, the internal complaints may simply fall on deaf ears.
For its part, the Commission does not seem inclined to include an internal reporting requirement in the final rule. They believe they struck a good balance in the proposed scheme, and are quick to point out that whistleblowers are eligible for a higher award if they make use of internal reporting systems before informing the Commission. Representatives of the Commission have stated publicly on several occasions that the proposed whistleblower scheme does not undermine internal reporting programs, and that the Commission is sincerely interested in working with companies’ compliance divisions to root our potential fraud.
There’s no telling what the final rule will look like, but it appears the debate over internal reporting requirements will continue. The final rule is due by mid-April. We’ll keep tabs on further developments here at Subject to Inquiry. And we’ll be sure to update you as soon as the final rule is released.