“The Whistleblower Improvement Act of 2011,” a new bill which would amend the whistleblower program under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), was introduced by Representative Michael Grimm (R-NY) on July 11, 2011. The new bill addresses the concern that the whistleblower program of the Dodd-Frank Act, as it currently stands, will undermine internal compliance programs as there is no requirement in the statute that employees first report potential securities violations to the employer before going to the U.S. Securities and Exchange Commission (“SEC” or “Commission”). With limited exceptions, the proposed legislation would require employees to first report any misconduct through the employer’s internal reporting system before going to the Commission. As we previously reported, the Final Rules implementing the Dodd-Frank Act whistleblower program became effective on August 12, 2011.
Employers should take particular note of the following provisions of the bill:
- It requires an employee whistleblower who seeks the monetary incentive award available under the Dodd-Frank Act whistleblower program, to first report information regarding violations of the securities laws to his or her employer before reporting that information to the Commission and to report such information to the Commission within 180 days after reporting the information to the employer.
- Internal reporting is not a precondition for receipt of the monetary award if the SEC concludes that the employer lacks either a policy prohibiting retaliation for reporting potential misconduct or an internal reporting system that allows for anonymous reporting, or if the SEC determines, in a preliminary investigation, that internal reporting was not a viable option for the whistleblower. To assess whether internal reporting was a viable option, the Commission would look for either (1) evidence that the highest level of management committed or was involved in the reported misconduct or (2) evidence of the employer’s bad faith.
- The monetary award available to whistleblowing employees would be permissive rather than mandatory and would be in an amount determined by the Commission, rather than a guaranteed minimum 10 percent of the monetary sanctions imposed by the SEC. The 30 percent cap, however, would remain in place.
- The SEC, prior to commencing any enforcement action, would be required to provide notice of the allegations to the employer company so that it may investigate the alleged misconduct and take its own remedial action. Notification would not, however, be required if the Commission determines in the course of a preliminary investigation, not to exceed 30 days, that such notification would jeopardize the investigation and prevent the gathering of relevant facts. Such a determination would be made based on a finding that the employer acted in bad faith or evidence that the highest level of management committed or was involved in the misconduct.
- If an employer, after being notified of allegations of misconduct, responds in good faith — which could include conducting an investigation, reporting results of such an investigation to the Commission, and taking appropriate corrective action — then the employer will be treated as having self-reported the information.
This Bill has been referred to the House Committees on Financial Services and Agriculture for a period to be determined by the Speaker of the House.