Debate over SEC Whistleblower Bounties

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Last week the SEC issued a set of proposed rules regarding whistleblower bounties. Some believed that the whistle blower provision as originally written in the bill, could lead to rulemaking that encouraged employees with knowledge of malfeasance to eschew internal integrity programs in favor of going directly to the SEC. The proposed rules contain specific measures designed to ameliorate these concerns. Read a good summary here.

There are those who believe that the proposed rules do not go far enough to ensure that employees use internal mechanisms first. In an interview with the WSJ (sub req’d) Steve Pearlman of Seyfarth said:

“We’d like to see the SEC do more to encourage whistleblowers to give a company a chance to fix the problem first. It’s better for the company and better for its shareholders.”

Strong internal programs can be good for industry and government alike. By incentivizing more robust internal policing, regulators can improve oversight while reducing their need to intercede. Malfeasance that is dealt with internally costs tax payers nothing and ensures that SEC resources, and the resources of similar entities in other sectors, are used to pursue the most egregious cases. The sticking point in this case seems to be whether whistleblowers should be required to utilize internal mechanisms to qualify for the bounties or whether internal engagement should only be a factor in determining bounty eligibility.

We now enter the comment period which lasts until December 17th with final rules expected in the end of March, next year. It will be interesting to see where this negotiation ultimately ends up.

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