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SEC Chairman Says Whistleblower Program Yielding Significant Benefits, Calls Proposed Changes Premature

According to Securities and Exchange Commission (SEC) Chairman Mary Schapiro, the SEC’s new whistleblower program is already providing “significant benefits” one year after the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In a letter sent to Rep. Barney Frank (D-MA), co-author of Dodd-Frank, SEC Chairman Schapiro argued that recent calls to change the whistleblower law “before it has had an opportunity to demonstrate its full value seem premature, particularly in the absence of any evidence of problems with the current program.”

Chairman Schapiro’s letter came in advance of last week’s move by the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises to approve an amendment to Dodd-Frank.  The bill, H.R. 2483,  also known as the “Whistleblower Improvement Act of 2011”, is sponsored by Rep. Michael Grimm (R-NY) and would require potential whistleblowers first to report wrongdoing internally to employers prior to notifying the government in order to be eligible for a whistleblower award. The bill would wave this requirement in the event that the SEC determines that there is evidence that management of a company may have participated in wrongdoing or fraud. The full House Committee on Financial Services is yet to vote on the proposed legislation.

Chairman Schapiro noted in her letter that mandating internal reporting of suspected wrongdoing would likely “have a chilling effect” on whistleblowers and that the current program already allows whistleblowers to collect an award if they report information internally first.  Those whistleblowers are still eligible for an award even if the company self-reports the same information to the SEC and that information leads to a successful SEC enforcement action against that company.

The proposed changes to Dodd-Frank may progress further in the House, but Senate passage is unlikely as a majority of members are expected to oppose efforts to make such changes to the Dodd-Frank Act whistleblower provisions.

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