After the financial crisis erupted in 2008, Congress passed the Dodd Frank Act, which arguably represents one of the largest sweeping changes to financial regulation in decades. The measure was signed into law last summer. Last week the Securities and Exchange Commission voted three-to-two to finalize new rules in a highly contentious requirement of the financial regulatory law.

The SEC approved its final rules that focus on rewarding corporate whistleblowers who alert the agency to securities violations. Cincinnati whistleblower attorneys know that oftentimes employees who suspect fraud or other illegal are reluctant to speak up about the possible illegal acts for fear of retaliation. Federal and state laws are in place in many areas to protect whistleblowers from employer retaliation. Similarly, whistleblower laws generally provide financial incentives for employees who come forward with valid whistleblower claims.

The SEC whistleblower rules adopted last week include such a financial incentive for whistleblowers who bring forward original and useful information related to securities fraud. Under the new rules, whistleblowers we share in 10 to 30 percent of sanctions imposed by the Sec for valid cases of securities fraud.

Among the most contentious parts of the debate leading up to the final vote was the question of whether whistleblowers should first raise the issue internally with the company. Corporate lobbyists had asked the SEC first make it mandatory for employees to address their concerns with their employers. Business groups argued that they should learn of the concerning issues first so that the employer can conduct its own investigation of the allegations before moving forward with any other actions.

The final rule does not include such a provision. The "rules are intended to break the silence of those who see a wrong," says SEC Chairman Mary L. Schapiro. A majority of the SEC commissioners rejected the idea that the rule should mandate whistleblowers to first notify the company through internal processes. One concession to the business lobby appears to be a provision that, when determining the size of the reward for a whistleblower, the SEC can consider giving a whistleblower credit for first raising allegations with the company's compliance department.

Source: Washington Post, "SEC approves new rewards for whistleblowers," David S. Hilzenrath 25 May 2011