The End of the Internal Compliance World as We Know It, or an Enhancement of the Effectiveness of Securities Law Enforcement? Bounty Hunting Under the Dodd-Frank Act’s Whistleblower Provisions
Posted: 26 Sep 2011 Last revised: 14 Oct 2014
Date Written: August 12, 2011
In the wake of Bernard Madoff’s $65 billion Ponzi scheme and the recent economic crisis stemming largely from loosely regulated subprime lending and mortgage-backed securities, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) on July 21, 2010, signaling loudly and clearly that change is coming to Wall Street. But Wall Street is not the only one receiving a message. Buried deep within the 2,319 pages of the Dodd-Frank Act, companies can find Section 922, the whistleblower provision, which provides a bounty for whistleblowers who report securities violations to the Securities and Exchange Commission.
These bounty provisions and the subsequent rules implementing them have been criticized by many as ineffective and unnecessarily intrusive on established internal compliance programs. In light of these criticisms, this Article analyzes the Dodd-Frank bounty program and its likely effect on corporate internal compliance programs, relying largely upon literature and studies in the areas of behavioral economics, organizational behavior, and business ethics relating to whistleblowing. The authors argue that rather than undermining internal compliance programs, the Dodd-Frank bounty program will serve as a much needed check on poorly administered internal compliance that are not adequately policing fraud and unethical behavior.
Keywords: whistleblowing, internal compliance, bounty, ethics, corporate governance, Dodd-Frank
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