The Whistleblower Bounty: Rewarding Friends and Punishing Enemies

This week the SEC approved the so-called Whistleblower Rule made possible because my senator, one Scott P. Brown (_r-MA), caved on the Dodd-Frank financial reform legislation.

Under the final rule, whistleblowers whose tips lead to cases that result in sanctions exceeding $1 million can be eligible for a reward of 10 percent to 30 percent of the total sanctions. Although the rule encourages whistleblowers to first report problems internally, it does not mandate it.

I've prepared and signed more SEC filings than I can count, and I have nothing at all against whistleblowers. As a matter of fact, I like 'em. If there's something going on in the company that would require disclosure in a filing, I want to know about it.

But that last bold part in the quote about not requiring internal reporting first ... that's a huge problem. Especially given that we in corporate America just put in a metric shitload of new whistleblower procedures under the Sarbanes-Oxley Act of 2002. You remember that old thing, right?

I mean, why tell the goofballs in the accounting department (like me) about something for free when you can run to the SEC and maybe get cut in for six figures, amiright? And an unethical employee might, might even be tempted to let a small problem grow into a large one just to get past that pesky $1 million threshold. Crazy talk, you say? Not so much - this happens all the time in qui tam actions brought under the False Claims Act that this provision in Dodd-Frank was modeled on.

Like with anything the Obama administration does these days, the best way to understand it is to identify the winners and losers.

Two Winners:

• Lawyers, who'll pull down some sweet, sweet fees defending accused executives and companies, and


• Business-bashing Democrats, who have long been denied the campaign prop perp walks they would otherwise have if those awful corporate executives weren't able to directly address whistleblowers' allegations.

Two Losers:

• Companies that get dragged through the mud in public because their internal control procedures are being undercut by this ill-conceived rule, and


• Consumers, who ultimately wind up paying for all this.

In other words, the usual suspects.

Thanks, Scott.

posted by Andy at 12:00 PM

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