New Bill Calls for Whistleblowers to Notify Financial Firms of Alleged Violations

A new bill introduced by Republicans in the House is mandating that to be able to qualify for the SEC’s new Whistleblower program employees would have to first notify their firms of possible securities violations before going to the Commission. Commenting on the proposed legislation, which is known as the Whistleblower Improvement Act (H.R. 2483), Shepherd Smith Edwards and Kantas founder and Stockbroker Fraud Attorney William Shepherd said: “Does this even make sense: Before an employee anonymously reports his or her company is defrauding people, that employee must first report it to management of the company? The only goal in requiring this would be so the company can sweep the wrongdoing under the carpet rather than get caught. Who do these Congressional folks actually work for?”

Under Section 21F of the Securities Exchange Act of 1934, which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. No. 111-203), whistleblowers that voluntarily give original information about a federal securities law violation that has been committed are eligible for up to 30% of all penalties and fines collected by the SEC over the violation. This latest bill requires employees to first provide information about the alleged misconduct to their employees to qualify for part of the bounty. However, they don’t have to report the alleged violations internally when there is evidence of alleged misconduct involving the highest management levels or other evidence of bad faith by the employer. In many cases, prior to taking enforcement action the SEC would have to notify a company that a whistleblower has passed on information and an investigation is under way.

The new bill would revise the SEC rule that was implemented on May 25 that, per Dodd-Frank, doesn’t require employees to go to their firms internal compliance programs first. Business groups, the defense bar, and some Republican lawmakers had opposed the rule.

Related Web Resources:
Bill Would Require Whistleblowers To Report Alleged Violations to Firms First, Securities.Stanford.edu

Whistleblower Improvement Act (H.R. 2483)

Section 21F to the Securities Exchange Act of 1934 (PDF)


More Blog Posts:

Ex-UBS Employee Can Proceed with Her Whistleblower Claim, Says District Court, Institutional Investors Securities Blog, February 15, 2011

SEC’s Proposal on Implementing Whistleblower Rule Draws Mixed Reactions, Institutional Investors Securities Blog, January 3, 2011

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008, Stockbroker Fraud Blog, May 5, 2011

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