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Dodd-Frank Financial 'Reform' Act May Force Companies to Clean Up Their Act

Wall Street lobbyists may have successfully managed to emasculate most of the important parts of the financial reform bill just passed by Congress last month, but one part of that 2000-page act, which establishes as bounty for whistleblowers who expose corporate financial wrongdoing to the Securities and Exchange System, managed to slip through unscathed.

If this surprisingly strong measure is supported by strong enabling regulations at the SEC, which has until next April to draw them up and approve them, some legal experts, including at law firms that specialize in representing corporate clients, say it could have a profound effect on the behavior of American companies.

The language being used by some of these attorneys is actually pretty apocalyptic, and entertaining to read.

Here’s a comment by the corporate law firm of Seyfarth Shaw on the new whistleblower provision’s significance:

“Employers need to ensure that, where practicable, whistleblower claims are resolved internally, as employees now have a unique incentive (in the form of a bounty) to report perceived misconduct to third-parties, such as the SEC, even before an employer may adequately address their concerns.

“Thus, employers are compelled to implement sophisticated complaint hotlines and provide multiple avenues through which employees can report perceived misconduct without fear of retaliation. Likewise, employers, including both publicly traded companies and their private subsidiaries and affiliates, need to promulgate appropriate codes of ethics and anti-retaliation policies and train managers to be receptive and responsive to employee complaints. Further, on a broader scale, management should adopt leadership models that foster a culture of integrity and accountability throughout the organization. Management should do so with an eye towards encouraging employees to raise complaints internally rather than to third parties.”

The implication here, of course, is that the present situation is the opposite, which as almost anyone who has worked for a corporation will attest, is exactly correct.

More often than not, the norm is that employers do routinely retaliate against employees who try to do the right thing and report corporate malfeasance, even internally, and lower-level managers are unresponsive and prone to retaliation. Furthermore, senior management at many companies does not provide any kind of model of integrity and accountability or encourage employees to raise complaints internally.

It will be interesting to see what the impact of this new legislation will be.

According to a Senate investigation conducted several years ago, 50% of the investigations by the SEC’s enforcement division that led to sanctions or prosecution of corporations for violations of securities law over the years since the agency was created in 1934 have been the result of whistleblower disclosures, and that was before the agency was paying bounties for information. People were reporting financial crimes and misbehavior out of moral indignation or a desire for revenge even where there was no financial incentive for them to do so.



story | by Dr. Radut