SEC Nixes Rule Requiring Whistle-Blowers Seeking Big Bucks to Start with Internal Corp. Complaint
Updated: In a 3-2 vote today, the U.S. Securities and Exchange Commission nixed an effort to require whistle-blowers to complain directly to corporations before initiating enforcement action.
Rejecting an appeal seeking to require whistle-blowers to go first to internal compliance entities, the SEC said incentives to report wrongdoing directly to the corporation would more effectively encourage internal compliance, Bloomberg reports.
Under the standard adopted by the commission, whistle-blowing bounties of as much as 30 percent of the penalties paid can be awarded to those whose high-quality tips are passed on to the SEC.
A post by the Blog of Legal Times offers thoughts from practitioners about how the new standard is likely to work.
Opponents argued that this approach will open the door to a deluge of complaints that the SEC isn’t prepared to deal with.
The SEC rulemaking sets standards for enforcing the Dodd-Frank Act.
An ABA news advisory (PDF) reports that the final version of the rule makes clear that lawyers won’t be eligible to receive such payments if they are found to have divulged information protected by attorney-client privilege. ABA President Stephen Zack commended the SEC for making this distinction.
“The integrity of the lawyer-client relationship is sacred,” Zack said. “The erosion of a lawyer’s duty of confidentiality, either by weakening its provisions or by creating incentives for lawyers to disregard their professional obligations, would undermine the quality of the lawyer-client relationship and the effectiveness of the privilege, deny the client its right to effective counsel, and reduce, rather than increase, compliance with the law.”
Related coverage:
ABA Journal: “SEC Is Giving Whistle-Blower Protection One Last Lick”
ABAJournal.com: “Whistle-Blowing to the SEC Is About to Become More Profitable”
ABAJournal.com: “As New Whistle-Blower Law Ups Ante, Plaintiff’s Firms Are Flooded with Would-Be Claimants”
ABAJournal.com: “Lawyer Seeks SEC Snitches in Movie Theater Ads Running with New ‘Wall Street’ Film”
Last updated May 26 to include ABA news advisory.
