Financial reform this week: Will SEC’s final whistleblower rule require first filing internal complaint?

Introduction

Corporate lobbyists will find out Wednesday if they were successful in pressing the Securities and Exchange Commission to weaken its proposal for a generous whistleblower bounty program.

The SEC plan released in November triggered a landslide of public comment letters and lobbying by corporate interests who complained that offering a bounty of up to 30 percent of settlements over $1 million to whistleblowers would encourage employees to go straight to the agency to report suspected misconduct. The U.S. Chamber of Commerce urged the SEC to give companies a chance to police themselves by requiring whistleblowers to first contact company-run hotlines.

New protections – and incentives – for whistleblowers were included in the Dodd-Frank reform law to strengthen the SEC’s 20-year-old program. Consumer groups say the existing SEC whistleblower program has paid out only five times over the years, for a relatively meager total of $160,000.

Earlier this month, a federal district court in New York issued the first decision related to the Dodd-Frank law whistleblower mandate. The judge ruled that a whistleblower must first provide information to the SEC to pursue a claim, unless the information falls into four narrow categories. Congress “intended to encourage whistleblowers” to report securities violations to the SEC,” the judge said in the case Patrick Egan v. TradingScreen Inc.

SEC commissioners are scheduled to vote on a final whistleblower rule at their meeting on Wednesday morning.

Other Congressional hearings, rulemaking deadlines and events related to the Dodd-Frank reform law this week:

Monday, May 23

Bank resolutions – Deadline for public comments on the Federal Deposit Insurance Corp’s proposal to define what financial companies are subject to resolution under the Dodd-Frank law, and to detail other resolution issues such as recoupment of compensation from senior executives, priorities for expenses and unsecured claims, and the process for judicial determination of claims disallowed by the receiver.

S&L regulation – Deadline for public comments on the Fed’s plan to apply its consolidated supervisory program for bank holding companies to savings and loan holding companies. The responsibility will transfer from the disbanding Office of Thrift Supervision to the Fed on July 21.

Tuesday, May 24