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Dodd-Frank ushers in increased whistleblower complaints

The Dodd-Frank Wall Street Reform and Consumer Protection Act, the product of last year's Congressional effort to reform regulation of the financial industry, gave the Securities and Exchange Commission the power to write rules requiring large payments to whistleblowers in cases settling for over $1 million.

Since Congress enacted the Dodd-Frank law last July, the Securities and Exchange Commission has been receiving one to two "high value" whistleblowers tips and complaints a day.

Under the Dodd-Frank law, whistleblowers may receive between 10 and 30 percent of settlements exceeding $1 million. Compliance personnel and supervisors charged with receiving compliance complaints are excluded from filing whistleblower complaints, and the law encourages employees to attempt to resolve the issue internally prior to filing a complaint with the SEC.

The Dodd-Frank whistleblower provisions have provoked controversy among large corporations. Various corporate compliance departments have expressed concern that the provisions undermine their compliance programs by providing incentives for employees to bypass internal protocols in order to gain whistleblower rewards.

But some companies feel that the law doesn't go far enough, and that it should require employees to use internal compliance and reporting procedures to deal with the compliant and allow companies a reasonable amount of time to deal with the complaint. Others feel that the law is overly restrictive by preventing the most knowledgeable employees-those in compliance-from reporting violations.

Whistleblowers sometimes come from within the corporation itself, sometimes from competitors or counterparties. The SEC has even received tips "jilted spouse[s]." Tips are often submitted by a lawyer on behalf of a whistleblower, and are quality enough to allow the SEC to quickly pursue the case.

Prior to the law's passage, the agency received around two dozen per year, according to an SEC spokesman.

In dealing with the new atmosphere created by the Dodd-Frank whistleblower provision, companies are encouraged to strengthen internal audit procedures, promote a culture of compliance, and develop steps for prompt self-reporting to the Securities and Exchange Commission. Further, employees should be aware of their right to report violations and should not be subject to retaliatory action for exercising that right.


Marketwatch: Ronald D. Orol, "SEC sees 'one or two' top whistleblower tips a day," 4 Feb 2011., "Dodd-Frank would provide incentives for whistleblowers," Bryan House, 25 Jan 2011.

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