How to Leverage SEC Whistleblower Rules: Seven Steps to Incentivizing Internal Reporting

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The SEC whistleblower program, implemented under Section 922 of the Dodd-Frank Act, is primarily intended to reward individuals who act early to expose violations and who provide significant evidence that helps the SEC bring successful cases. The whistleblower rules contain three key provisions that can be integrated into a company’s existing compliance infrastructure to encourage internal reporting, thereby affording the company time to further investigate the claim, provide a solution, or self-report potential violations. The three key provisions are:

  1. 120-day rule: Whistleblowers who report internally are considered to have reported the same information to the SEC as of the date of the internal report so long as the whistleblower, or the company on the whistleblower’s behalf, provides the same information to the SEC within 120 days.
  2. Tacking: If an entity conducts an internal investigation based on a whistleblower’s internal report, and thereafter provides that information to the SEC, for purposes of determining whether an award is due and how much, the whistleblower will receive credit for the submission of the same information.
  3. Bump Up: Making use of a company’s internal compliance and reporting system to report wrongful conduct is a positive factor that will potentially increase the amount of a whistleblower award.

To take the most advantage of the new rules, companies should consider revising internal reporting policies and procedures to include the following:

  1. Create an “Internal Report Certificate Program” to memorialize the date on which the internal report occurred so that whistleblowers can be confident that the SEC will recognize their place in line.
  2. Provide whistleblowers with periodic updates throughout the 120-day period on the status of ensuing internal investigations so the whistleblower is aware of progress and can remain confident that his/her concerns are being addressed and that time still remains to report if needed.
  3. Create a system and culture that protects whistleblowers and removes perceived threats from efforts to communicate with the SEC, if desired or needed.
  4. Train managers to be supportive of employees who report wrongdoing internally.
  5. Consider establishing an internal award program that recognizes employees who exceed expectations in reporting wrongdoing internally.
  6. Enhance internal reporting hotlines and consider hiring a Whistleblower Ombudsman, a person independent of the company to whom the concerned employee can report.
  7. Publicize efforts taken in this regard so that employees are aware of the enhancements that have been made to the internal reporting program.

This post adapted from the article, “Seven Steps Companies Can Take to Incentivize Internal Reporting of FCPA Violations” by Thomas A. Sporkin, originally published in The FCPA Report, Vol. 1, No. 3, July 11, 2012.

 

Topics:  Dodd-Frank, SEC, Whistleblowers

Published In: Administrative Agency Updates, Business Organization Updates, Civil Remedies Updates, Labor & Employment Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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