Corporate Governance

Will Dodd-Frank Whistleblower Bounties Actually Pay Out?

By Anthony F. Maul

One of the most talked-about provisions of the recently-enacted Dodd-Frank financial regulation provides substantial monetary awards to whistleblowers that provide securities regulators with information resulting in successful enforcement actions.  Much of the discussion has focused on whether or not the rule creates a perverse incentive for corporate insiders to avoid reporting and remedying violations internally.  The Wall Street Journal, however, reports (subscription required) that there may be good reason to doubt that the whistleblower rule will create all that much havoc.  It seems similar whistleblower incentive programs have failed to pay out.

The SEC?s proposed rule enacting the Dodd-Frank provisions provides that:

To be considered for an award, a whistleblower must voluntarily provide the SEC with original information about a violation of the federal securities laws that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million.

Considering that the rewards will be between 10% and 30% of fines and settlements, the incentives could amount to a huge payoff for an individual whistleblower.  The Journal notes, however, that a similar program at the IRS hasn?t paid out a single red cent, despite having been enacted four years ago, and despite having resulted in hundreds of claims qualifying for rewards.  According to an Inspector General report last year, the problem is the bureaucracy hasn?t been able to resolve whistleblower claims in a timely fashion.  One reason for that is that the IRS program doesn?t pay out until the target of the investigation has exhausted all legal appeals and has actually paid the IRS.  It remains to be seen whether the SEC rule will function the same way.  If it does, the new whistleblower rules may not have all that a dramatic affect of the enforcement landscape after all.

Full post as published by PomTalk on December 14, 2010 (boomark / email).