Members of the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises debated Wednesday whether the Whistleblower rules enacted under Dodd-Frank would create “unintended consequences” and spark a slew of whistleblowers running to the Securities and Exchange Commission (SEC) for financial gain.
Rep. Scott Garrett (left), R-N.J., chairman of the subcommittee, said during his opening remarks that “foremost” among the concerns being raised about the Whistleblower rules—some of which have been displayed in comment letters to the SEC—are: “Will the incentive structure created by the Dodd-Frank provisions exacerbate violations by encouraging them to fester and become more serious problems? Does the legislation and the proposed rulemaking allow those complicit in violations to not only escape punishment, but potentially receive massive rewards in spite of their malfeasance?”
A further concern, Garrett said, is that “If internal compliance programs are bypassed, isn’t good corporate citizenship discouraged, and won’t there be a greater likelihood that companies will have less accurate financial statements and that companies will need to restate those financials upon which investors had already relied?”
Rep. Michael Grimm, R-N.Y., on Wednesday introduced proposed legislation designed to preserve “the internal reporting standards used by companies as mandated by Sarbanes-Oxley (SOX), to prevent those involved in wrong-doing from gaining rewards, and by removing incentives for bogus or frivolous claims to be reported to the SEC.”
The SEC created the Whistleblower office after Dodd-Frank mandated that the SEC pay rewards to individuals who voluntarily provide the Commission with original information that leads to successful SEC enforcement actions and certain related actions. The comment period on the proposed set of rules that the SEC will use to implement the whistleblower program expired on Dec. 17, 2010. SEC Chairman Mary Schapiro told AdvisorOne in a recent interview that the agency was now “finalizing” its whistleblower rules.