As previously reported on Subject to Inquiry, the Securities and Exchange Commission missed the April 21, 2011, deadline to adopt a final set of rules implementing its new whistleblower program.  The Commission is carefully tweaking the proposed rules it released last November, and recently announced it will unveil the final rules later this summer. 

In its continued deliberations, the Commission is likely considering vigorous public sentiment in favor of incorporating a requirement that would-be whistleblowers report suspected wrongdoing internally before providing information to regulators.  As Sarah Lynch of Reuters recently reported, however, the Commission has “no plan to make internal reporting a mandatory first step for whistleblowers.”  According to Ms. Lynch, the SEC is instead considering a “more nuanced” approach that would merely “encourage” whistleblowers to make use of internal reporting programs. 

The Commission’s delay in delivering a final set of rules coupled with the prospect of a scheme that does not include an internal reporting requirement seems to have been a veritable call to action for one Congressman.  According to Ashby Jones of the WSJ Law Blog, Representative Michael Grimm will “introduce legislation requiring people alleging corporate wrongdoing to inform their employers before running to the SEC.”  Grimm’s bill would also “give the SEC leeway to deny bounties to people who otherwise meet the program’s requirements,” “would ban awards for people who participated in [the] wrongdoing,” and would bar “lawyers representing whistleblowers … from working on a contingency-fee basis.”

In addition to Representative Grimm’s efforts, and even as the Commission works internally to devise a final set of rules, the U.S. House Committee on Financial Services will host a panel of industry officials this afternoon to thrash out several issues related to the highly-anticipated whistleblower program in a hearing entitled “Legislative Proposals to Address the Negative Consequences of the Dodd-Frank Whistleblower Provisions.” 

While the window for public comment on the proposed rules closed last December, there are clearly still plenty of twists and turns ahead in the rulemaking process.  A final vote on the rules could come as early as May 25.  We will continue to monitor and report on the rulemaking process.