Focus and Law

Whistleblower gets first payout under new law

August 31, 2012
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The first payment the Securities and Exchange Commission issued in August under a whistleblower program underscores the need for public companies to ensure they have their ethical house in order, a securities attorney in Grand Rapids said.

“Public companies already have to be mindful of so many laws and regulations, and this is one more thing to worry about,” said Dan Persinger, a partner at Warner Norcross & Judd LLP whose practice focuses on public company securities law, mergers and acquisitions and commercial contracts.

“The best thing for public companies here to do is to take a step back and make sure that top management — from the chief executive on down — is setting the right tone for the organization as far as ethics and compliance goes.”

The intensity of the handwringing at publicly traded companies may depend on how effective they are in urging all employees to abide with a culture of compliance, Persinger said.

“If you get a culture of compliance going in your organization, chances are you’re never going to have to worry about this stuff,” he said. “Once that’s done, the second priority is making sure companies have good lines of communication open, from rank-and-file employees to the top, so that when anything out of the ordinary happens, the concern is reported up the chain of command.”

On the other hand, even with those stipulations in place, wise is the corporation that takes proactive steps, added Persinger.

The reason companies need to take such action is the Dodd–Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010 by President Obama, which allows that, basically, anyone who has a reasonable belief that a public company has violated securities laws can report it to the SEC.

“That’s a pretty low threshold for making a complaint that could lead to an SEC investigation,” said Persinger. “It could be a supplier, a customer of a bank; it could be a depositor or a borrower — potentially, lots of people who could benefit, not just an employee.

“This law is different. You can make lots of money by reporting.”

Moreover, under Dodd-Frank, employers are not allowed to retaliate or discriminate against whistleblowers, and the SEC can take legal action against employers that do so.

To sweeten the whistle-blowing pot, those who provide original information to the SEC that helps the agency recover at least $1 million from the offending company is entitled to receive an award of 10 to 30 percent of the sanctions.

The SEC awarded its first payment Aug. 21: $50,000 to an unnamed whistleblower for tipping it on to a multimillion-dollar securities fraud scheme, enabling the agency to launch a swift investigation that led to a court ordering more than $1 million in sanctions.

Based on a conversation Persinger said he had in April with Sean McKessy, chief of the SEC’s Office of the Whistleblower, there has not been an onslaught of complaints filed.

“He said they really have not been overwhelmed with problems or inaccurate or spurious, silly complaints,” Persinger said. “He expressed the quality of the reports they were getting is kind of a relief to them. It’s not becoming a hotline for reporting trivial violations or employees’ personal problems.”

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