The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted by the Securities and Exchange Commission last summer, but it’s only today that an important program designed to encourage corporate whistleblowers takes effect.
According to the SEC, more than 240 comment letters and some 1,300 form letters were received on the Dodd-Frank whistleblower program, in part due to a “most troubling” clause, said Jim Carll, chairman of Archer & Grenier P.C., which has its headquarters in Haddonfield.
The SEC must now pay eligible whistleblowers no less than 10 percent of any government recovery of more than $1 million — but under Dodd-Frank, there are no requirements that employees must first go through internal compliance channels at their company, which “certainly provides an incentive for employees to find real or imaginative problems,” Carll said.
If an employee doesn’t go through internal channels, “the company doesn’t have an opportunity to do its own investigation into the allegations, and if the allegation is accurate, to do corrective action before the government starts their investigation.”
Carll said companies will now make a more concerted effort to get employees to use internal control mechanisms first.
“A lot of that will revolve around perhaps more education and so forth to employees as to the nature of the internal control program within the company — how to use it and encouraging employees to use it, making sure they’re not afraid to use it,” he said.
Employees who report through a company’s internal compliance system can still be eligible for a reward if the company then self-reports to SEC and “leads to a successful commission action,” according to the regulation’s description.
Carll said he is interested to see also how the SEC combines smaller recoveries from the same whistleblower’s information to reach the $1 million threshold, another of the changes made to the original proposal based upon comments.
“I think the hope of the SEC, and the government, would be that just the threat of the greater chance of whistleblowing may have an affect on companies to make sure their house is in order,” Carll said. “I don’t know that they’re necessarily going to be trying to cobble together recoveries to get up to the million-dollar level — but maybe they will. We’ll just have to see how that develops.”