SEC Launches Office of the Whistleblower

Just more than a year after the Dodd Frank Wall Street Reform and Consumer Protection Act was signed into law, the Securities & Exchange Commission (“SEC”) has established a new office to handle one of the major provisions of the act.  The Office of the Whistleblower was publicly launched last week.

To aid in the submission of whistleblower tips, the new office has created a website that provides details on how whistleblowers should provide information and what whistleblowers should expect. According to the website the SEC, “… is authorized by Congress to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected.”

Potential whistleblowers are encouraged to report their issue through a company’s internal compliance program before contacting the SEC.  In fact, according to the final rules, the SEC will consider increasing the overall award amount if the whistleblower utilizes the internal compliance channels.  The following is an excerpt from the SEC’s whistleblower rule book.

Participation in internal compliance systems. The Commission will assess whether, and the extent to which, the whistleblower and any legal representative of the whistleblower participated in internal compliance systems. In considering this factor, the Commission may take into account, among other things:
(i) Whether, and the extent to which, a whistleblower reported the possible securities violations through internal whistleblower, legal or compliance procedures before, or at the same time as, reporting them to the Commission; and
(ii) Whether, and the extent to which, a whistleblower assisted any internal investigation or inquiry concerning the reported securities violations.

Companies should use this opportunity to communicate the importance of reporting issues through internal channels before reporting to the SEC.  For those companies that do not have a well constructed compliance program, now is the time to build one.

Waves of Reform Impacting ERM Efforts

As Enterprise Risk Management (“ERM”) has evolved as a discipline over the last decade, it has been largely shaped by waves of reform efforts resulting from corporate fraud in the early 2000’s to economic catastrophes and widespread corruption in the latter half of the decade. According to a recent article by Mary Driscoll in Business Finance Magazine (a partner publication of The ERM Current), a new wave of ERM change and focus is at hand. Through several sources, Mary offers her view of the most recent wave and the one on the horizon.

The third wave, which is proving just as significant, came in early 2010 in the form of SEC Rule 33-9089, which “mandates disclosure of risk oversight and risk reporting lines, risk assessment by business unit, and assessment of the risk associated with compensation plans,” explains Paul Walker, Associate Professor of Commerce at the University of Virginia and a leading academic in the field.

“Furthermore, the recent Dodd-Frank Wall Street Reform and Consumer Protection Act has raised the risk bar by mandating risk committees and risk experts on those committees. Add to this the fiduciary duty pressure on boards and the potential risk-related lawsuits, and you end up with risk getting attention at every level of the organization,” adds Walker.

Now consider this twist. According to an article by Deloitte Financial Advisory Services LLP’s Toby Bishop, “The Dodd-Frank Act has created a large financial incentive for whistle-blowing in companies across all industries.” An area of particular concern relates to violations of the Foreign Corrupt Practices Act, and that could mean higher potential liabilities for companies moving aggressively into emerging markets where local officials expect to trade access for cash.

What has your company done to prepare for the potential impacts of these waves?  If you would like to learn more about practical, cost-effective solutions, let us know by emailing us at NavigateSuccessfully@WheelhouseAdvisors.com.