The U.S. Securities and Exchange Commission (SEC) on Wednesday approved a controversial rule to reward corporate whistleblowers, as part of the Dodd-Frank financial reform legislation.
In a decision that is sure to rile up corporate America, federal regulators approved a provision in the Dodd-Frank Act which allows the SEC to reward individuals who come forward and play the role of a whistleblower. This could incentivize employees to uncover wrongdoing early and avoid the type of catastrophes that were the result of the Enron and WorldCom debacles.
In a 3-2 vote, the SEC said that whistleblowers don’t have to go through a company’s internal channels to bring to light unsavory practices, and could go directly to the SEC.
The SEC said that whistleblowers who successfully uncover wrongdoing that lead to sanctions of $1 million or more against their former employers could be eligible for a payout of between 10 to 30 percent of the total sanctions against the firm.
But critics of the rule say that this would undermine companies’ internal controls procedures in dealing with such issues, and it could inundate the SEC with false or accusatory tips from those seeking financial gains.
“Not informing the company of a potential fraud and waiting for the SEC to act is the equivalent of not calling the firefighters down the street to put out a raging fire,” said David Hirschmann, CEO of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness.
In a decision that is sure to rile up corporate America, federal regulators approved a provision in the Dodd-Frank Act which allows the SEC to reward individuals who come forward and play the role of a whistleblower. This could incentivize employees to uncover wrongdoing early and avoid the type of catastrophes that were the result of the Enron and WorldCom debacles.
In a 3-2 vote, the SEC said that whistleblowers don’t have to go through a company’s internal channels to bring to light unsavory practices, and could go directly to the SEC.
The SEC said that whistleblowers who successfully uncover wrongdoing that lead to sanctions of $1 million or more against their former employers could be eligible for a payout of between 10 to 30 percent of the total sanctions against the firm.
But critics of the rule say that this would undermine companies’ internal controls procedures in dealing with such issues, and it could inundate the SEC with false or accusatory tips from those seeking financial gains.
“Not informing the company of a potential fraud and waiting for the SEC to act is the equivalent of not calling the firefighters down the street to put out a raging fire,” said David Hirschmann, CEO of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness.
