SEC Defers Opening Whistleblower Office Required By Dodd-Frank
On December 2, 2010, the U.S. Securities and Exchange Commission announced that "budget uncertainty" has caused it to postpone setting up an office to handle whistleblower complaints. A new SEC whistleblower office is required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Once created, the new SEC whistleblower office will be responsible for receiving and vetting tips received through a new bounty program created in Dodd-Frank. Under that program, whistleblowers who report to the SEC “original information” about securities law violations can earn 10% to 30% of monetary sanction of more than $1 million in a successful enforcement action brought by the agency.
The bounty program has created concern in the business community that it may motivate disgruntled employees and others to file frivolous allegations, resulting in companies needlessly expending resources in investigation and defense costs. (Read more about Dodd-Frank's bounty provisions in the November 2010 Corporate Counsel: "When the Whistle Blows, Dodd-Frank's bounty provisions has GCs staying up nights.")
Existing staff within the Division of Enforcement will on an interim basis handle the tasks that would have been assigned to a formal whistleblower office within the agency, according to the SEC announcement. The SEC said on its website that it had similarly deferred creating four other offices required by Dodd-Frank: an office to oversee credit ratings; a new investor advisory committee; an office of investor advocate; and an office of women and minority inclusion.
The SEC said it would have more information on the implementation dates for the deferred offices after Congress finalized the 2011 budget. The Dodd-Frank law includes additional funding for the SEC to handle the tasks assigned to the agency; however, disputes on Capital Hill about budget issues has created uncertainty about the amount of funding that the SEC and other federal agencies will actually receive to implement Dodd-Frank. (Read more about financial reform budget issues at Law360 Financial Services Law: GOP May Slow Down Financial Reform.)
Dodd-Frank charges the SEC with a substantial rewrite of the financial regulatory framework, including rewriting 105 rules, creating five new divisions, and completing 20 studies. The agency has until July 2011 to complete much of its rewrite work.
(Read more on this topic at Law360 and The Wall Street Journal.)
