Blowing the Whistle on the Dodd-Frank Whistleblower Provisions

Abstract

In 2010, Congress enacted securities fraud whistleblower incentives through the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The whistleblower incentives include a bounty program (i.e. monetary incentive) as well as protection from employer retaliation. Written in April 2011, this article is an early effort to analyze those legal incentives and the proposed SEC rules implementing those incentives.

With reference to recent behavioral studies regarding incentives to report fraud, here I argue that the Dodd-Frank whistleblower provisions may not deter securities fraud and protect whistleblowers as intended. Due to non-monetary incentives for reporting securities fraud, the Dodd-Frank whistleblower bounty program may be a misplaced incentive. In fact, the bounty program may incentivize employees to report fraud externally to government, thereby detracting from corporate efforts to self-report fraud. Rather than enacting a sweeping bounty program, the SEC should make efforts to improve the administration and response to existing whistleblower tips.

Finally, depending on the success or failure of these incentives, the Dodd-Frank whistleblower provisions may demonstrate that the 2000-plus page Dodd-Frank Act should have been more thoroughly vetted prior to enactment.

Keywords: whistleblower, dodd-frank, fcpa, securities fraud