Legal Briefs: SEC debates whistleblower incentives

By Amanda Becker
Monday, November 8, 2010

The Securities and Exchange Commission held an open meeting last Wednesday on the implementation of whistleblower provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the provisions of the act, whistleblowers who provide the SEC with new information that leads to a successful enforcement action stand to receive 10 to 30 percent of any monetary sanctions. Businesses are worried that the potentially lucrative program will prompt employees to go directly to the commission instead of utilizing internal reporting programs.

In drafting how the program will function, SEC Chairman Mary L. Shapiro said the agency was mindful of such concerns. After describing the specifics of the program, including how individuals would report fraud and how the SEC would evaluate the merit of such claims, she assured the group that the SEC was keen to "reduce the chance that employees unnecessarily bypass internal compliance programs that their own companies may have established" and the "goal is not to, in any way, reduce the effectiveness of a company's existing compliance, legal, audit and similar internal processes."

Despite that intention, Commissioner Troy A. Paredes said he was concerned that the SEC would be "inundated" with fraud allegations that would stress its resources and that the proposed rules might not go far enough in encouraging potential whistleblowers to first pursue internal corporate compliance programs.

"How might we encourage individuals to take full advantage of a company's compliance procedures so that the company itself is well-positioned to respond to the tip?" Parades asked those present.

Parades encouraged would-be commenters to address that question and others during the open-comment period, which ends Dec. 17.


A merger between the Atlanta firm Kilpatrick Stockton and the San Francisco intellectual property shop Townsend and Townsend and Crew was announced last week. The new firm will be known as Kilpatrick Townsend & Stockton.

Both firms have a presence in the District, where Kilpatrick boasts more than 60 attorneys and Townsend has about 20. The management team of the combined firm will include Bill Dorris as chair and Diane Prucino and Maureen Sheehy as co-managing partners.

The merger's effective date is Jan. 1, 2011.

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