Firm Renews Recommendation that the SEC Follow IRS Rules
for Whistleblowers

On Wednesday, December 15, Arent Fox LLP submitted a second letter to the US Securities and Exchange Commission in response to the SEC's request for comments about proposed rulemaking by the SEC relating to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The letter supplements Arent Fox’s prior comments – submitted October 25 – on the Securities Whistleblower Incentives and Protection Program in Title IX of Dodd-Frank, which gives whistleblowers a bounty payment for information about securities violations at public companies.

“Since the date of our original submission, the Securities and Exchange Commission has issued Proposed Rules for Implementing the Whistleblower Provision of Section 21F of the Securities Exchange Act of 1934,” the letter opens. “We believe the Proposed Rules fail to address the significant concerns raised in our prior submission. In particular, the Proposed Rules fail to adopt the well-reasoned and important safeguards implemented by the IRS in governing its whistleblower program upon which the Dodd-Frank whistleblower provisions were based.”

“Adopting a ‘one-bite’ rule, which would prohibit the SEC from deputizing a whistleblower to go ‘back in’ to a public company to look around for more information, prevents the risk of the informant becoming an instrument or agent of the government and the potential negative evidentiary consequences that might attach,” Arent Fox writes. “In addition, the Proposed Rules fail to adopt the IRS’s ‘no bite’ rule precluding the SEC from accepting information from public company representatives with direct fiduciary responsibilities to the company. We continue to believe that such company representatives should be excluded by rule from eligibility for financial rewards.”

The letter concludes, “Finally, the Proposed Rules create an unnecessary and unhealthy competition between pubic company compliance departments and the SEC for whistleblower information. In light of the significant financial incentives being offered by the SEC for such information, employees will undoubtedly elect to circumvent company compliance departments. The Proposed Rules’ 90-day ‘grace period,’ and proposed ‘credit’ for reporting internally first, do little to address this fundamental flaw.”

To read the entire December 15 letter from Arent Fox to the SEC, please click here.

To read Arent Fox’s original October 25 letter to the SEC, please click here.

For further information regarding the whistleblower provisions of the Dodd-Frank Act or other anticorruption matters, please contact the Arent Fox attorney with whom you work or a member of Arent Fox’s International Trade or White Collar and Investigations Practice Groups.

Mark S. Radke
radke.mark@arentfox.com
202.715.8431

Peter V. B. Unger
unger.peter@arentfox.com
202.857.6220