Kansas City Whistleblower Lawyer Blog

On average, there is a $450 billion annual gap between the taxes that are owed to the federal government and the taxes that are actually paid. In theory, those who help the government find those who cheat on taxes and contribute to the shortfall should be the heroes that the federal government wants to reward. After all, the people who underreport income or hide assets can cost the government millions of dollars. At first glance it seems that Congress wanted to create incentives to report potential income tax fraud. Back in December 2006, Congress passed legislation that increased the reward for reporting tax fraud to the heights typically reserved for Qui Tam whistleblowers. During the last five years, potentially $500 million dollars in unreported or falsely deducted corporate and personal income tax could have been recovered thanks to this legislation.

Sadly, only one reward has been given under the new law since 2006. Four and a half million dollars was awarded to a corporate auditor who tried to convince his employer to pay the $20 million in taxes they rightfully owed.

The problem is not a shortage of claims nor is it the quality of the information. The problem appears to come from the IRS itself. In a 2010 interview, former IRS chief Donald Korb had this to say in Tax Notes:

The new whistle-blower provisions Congress enacted a couple of years ago have the potential to be a real disaster for the tax system. I believe that it is unseemly in this country to encourage people to turn in their neighbors and employers to the IRS, as contemplated by this particular program. The IRS didn't ask for these rules; they were forced on it by the Congress.

Such a statement speaks to a great institutional resistance to change, especially change that is, in the words of Korb, "forced on it by Congress."

However, due to decades of case law about "agency deference," the IRS has a great deal of leeway in interpreting just how to implement these new rules forced on it by Congress. Every opportunity that the IRS had to interpret these rules, it chose the path of most resistance. Some examples of problematic guidelines include:

• Narrowed the sources of recovery that are the basis of whistle-blower awards.


• Imposed unprecedented withholding requirements on whistle-blower awards.


• Created roadblocks to IRS interactions with whistle-blowers, such as the 2008 "one-bite" rule (now relaxed) that limited receipt of information to an initial meeting.


• Defined "planners and initiators" of the tax scheme - who by law receive only a reduced award (if any) - in a manner that could block employees whose involvement is far removed from the true architects of a scheme from receiving a reward.

Lawyers who work with such whistle-blower claims frequently complain of the "black hole" that seems to consume them before a resolution can be reached. Recently a whistleblower filed suit against the IRS to not only pay him, but also disclose how the information he provided contributed to finding and collecting from those he reported as committing tax fraud.

That a whistle-blower should have to sue an agency to learn how his information helped uncover fraud is the height of absurdity. It's not as if all federal agencies are as recalcitrant - the SEC has been quite amenable to whistleblower information. They understand that citizens who help uncover fraud are allies and not antagonists. There's no need for the IRS to get defensive about citizens "turning in their neighbors" or for attorneys representing whistle-blowers to become demoralized at the complete lack of progress due to some power struggle between Congress and the IRS.

Source:
IRS Keeps Ignoring Whistleblowers, by Richard Lavinthal, published at WashingtonExaminer.com, April 12, 2012.

See Our Related Blog Posts:
Federal Crack Down on Medicare Fraud Reaps Record Recovery of $4.1 Billion
$25 Billion Agreement Reached on Mortgage Fraud

High-level cooperation and coordination among several government enforcement agencies paved the way toward an unprecedented joint federal-state settlement related to abusive practices by mortgage servicers. A $25 billion agreement with Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc. was reached by the federal government and 49 state attorneys general to address mortgage loan servicing and foreclosure abuses. Not only does this agreement provide relief to America's homeowners, it also provides for future protections for new homeowners.

Attorney General Eric Holder stated, "It holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers. As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans. The agreement also requires substantial changes in how servicers do business, which will help to ensure the abuses of the past are not repeated."

Colorado Attorney General Suthers also commented, "This settlement has broad bipartisan support from the states because the attorneys general realize that the partnership with the federal agencies made it possible to achieve favorable terms and conditions that would have been difficult for the states or the federal government to achieve on their own."

New standards for mortgage loan servicing requirements and a $25 billion commitment to cover federal and state law violations are the basis of the joint federal-state agreement. The types of violations by mortgage loan servicers include "servicers' use of 'robo-signed' affidavits in foreclosure proceedings; deceptive practices in the offering of loan modifications; failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court."

It is important to note that, while this agreement resolves violations by mortgage loan servicers, it does not limit the pursuit of criminal action, such as illegal securitization activities, by federal and state agencies. Additionally, the agreement does not limit the United State's authority to go after losses incurred due to a bank's faulty due diligence on government-sponsored loans. Finally, individual borrowers are still free to pursue lawsuits on their own behalf.

As part of the global settlement, Loretta E. Lynch, US Attorney for the Eastern District of New York, announced that government claims against the Bank of America, Countrywide Financial Corporation and subsidiaries will be resolved with a settlement of $1 billion to be paid to the United States for mortgage origination and underwriting fraud. The investigation resulted in findings that the FHA insurance fund was defrauded by the bank and Countrywide through a practice of originating mortgage loans for real estate with inflated appraisals and making loans to unqualified borrowers. This particular settlement was achieved largely with remedies available under the False Claims Act. Findings indicate that the underwriting and origination practices were systematic, resulting in hundreds of millions of dollars in damages to the Federal Housing Authority (FHA) insurance fund.

"It is fundamental that lending institutions that earn the authority to directly endorse FHA-insured mortgages apply our standards," said HUD Secretary Donovan. "This is the largest false claims act settlement related to mortgage fraud and will not only compensate FHA but will also ensure assistance for homeowners who have been harmed by Countrywide."

The interagency Financial Fraud Enforcement Task Force, established by President Barack Obama, was paramount in attaining this landmark joint federal-state agreement. His task force, which includes a cross section of federal agencies, regulators, and inspectors general, as well as state and local law enforcement officials, is a proactive initiative utilizing the best and most powerful range of enforcement resources.

On January 27, 2012, Attorney General Eric Holder announced the development and implementation of the new Residential Mortgage-Backed Securities Working Group, which will operate as part of Obama's Financial Fraud Enforcement Task Force. This new group will concentrate on efforts to pursue illegal activities related to residential mortgage-backed securities, including packaging, marketing and valuation.

Sources:

Federal Government and State Attorneys General Reach $25 Billion Agreement with Five Largest Mortgage Servicers to Address Mortgage Loan Servicing and Foreclosure Abuses, The U.S. Department of Justice, Office of Public Affairs, February 9, 2012

$1 Billion to be Paid by The Bank of America to The United States, Largest False Claims Act Settlement Relating to Mortage Fraud, United States Attorney's Office, Eastern District of New York, Robert Nardoza, Public Affairs Officer, February 9, 2012

Attorney General Holder Speaks at the Announcement of the Financial Fraud Enforcement Task Force's New Residential Mortgage-Backed Securities Working Group, The U.S. Department of Justice, January 27, 2012

The new Securities and Exchange Commission's Office of the Whistleblower opened on August 12, 2011. The new office is responsible for fielding tips received from whistleblowers, enforcing SEC rules and supporting the SEC in determining awards for whistleblowers. Motivated by the potential for large monetary awards, along with citizens' wanting to speak out about corporate wrongdoing, the expectation is that the number of individuals willing to report complaints to the SEC will increase dramatically.

This increase in activity is evidenced by the increase in these types of cases filed with the federal government since 2005, according to the Department of Labor's Occupational Safety and Health Administration (OSHA). While supporters of labor and shareholder interests are very much in favor of this trend, it puts increased pressure on corporations to ensure that strong internal compliance programs are in place as well as good communications and training to encourage internal reporting. Additionally, corporations are well served to have anti-retaliation policies in place.

OSHA administers multiple whistleblower protections under laws such as Sarbanes-Oxley and the Consumer Financial Protection Act. The agency has seen an increase in whistleblower complaints, specifically 2,339 charges in 2011 (through September 14, 2011), compared to 2,319 for all of 2010, and 2,158 in 2009.

Geoffrey Rapp, the Harold A. Anderson Professor of Law and Values at the University of Toledo's College of Law, commented on the increase in whistleblower charges. "The goal here is to get information about fraud before it becomes so serious, as in the collapse of [Bernard] Madoff and Enron, where the whole company falls apart, or the economy falls apart."

One such case recently concluded against Bank of America, in which the bank allegedly used retaliatory tactics against a whistleblower. OSHA ordered the bank to pay the former employee $930,000 in interest and back wages and to reinstate the employee.

The uptick in whistleblower activity garners conflicting opinions within the legal industry. Gregory Keating, co-chair of Littler Mendelson's whistleblower practice, believes that the monetary incentives are motivating individuals to go forward with unsubstantiated claims, citing examples of employees who were suffering from poor performance threatening to blow the whistle.

Those on the other side of the argument indicate that since government enforcers are limited, the new rules are necessary to incent corporate employees, who might otherwise be reluctant to come forward to blow the whistle on wrongdoing. Some also say that the increase in complaints is a sign of the times in which we live.

The 2010 Ethics & Workplace Survey by Deloitte reports that the financial collapse has compromised trust and ethics, highly important components in conducting business. The survey indicated that almost a third of employees reported that their colleagues are more likely to be unethical in this environment and that those planning to look for new jobs would do so as a result of a loss of trust in their employers.

Reuben Guttman, an attorney for Grant & Eisenhofer, a law firm specializing in corporate governance and fraud, stated that, "We live in an era where people are more open about second-guessing institutional activity." He also indicated that the financial collapse caused many people to "open their eye[s]. Entities we thought were reputable may be making misrepresentations and not telling the truth about what they're doing."

Sources:

Increased motivation for whistle-blowing, AccountingWEB in Watchdog, November 18, 2010

More workers willing to blow the whistle on their employer, Careers on MSNBC.com, September 19, 2011

Rise of the Whistleblowers, Law360, New York, August 22, 2011

The Dodd-Frank Wall Street Reform and Consumer Protection Act established a whistleblower program to be adopted by the Securities and Exchange Commission (SEC). Specifically, section 922 of the Dodd-Frank act amended the Securities Exchange Act of 1934 by adding a new section called "Securities Whistleblower Incentives and Protection." According to this new section, the SEC is to pay awards to whistleblowers that provide the SEC with original information that leads to the successful action whereby the SEC assesses greater than $1 million in fines and sanctions. The rules for this program to be adhered to by corporate compliance departments were finalized on May 25, 2011. Prior to the Dodd-Frank Act, the SEC's authority for rewarding whistleblowers covered only insider trading cases.

On August 12, 2011, the new rules became effective and the SEC launched a webpage designed for individuals to access, report violations and apply for financial awards. The new webpage at www.sec.gov/whistleblower contains necessary information regarding how to submit a tip, eligibility requirements, and frequently asked questions and answers.

The final rules of this program, seen as one of the most controversial requirements of Dodd-Frank, were adopted by a very slim margin, a 3-2 vote by the SEC. Mary Schapiro, chairman of the SEC commented that the new rules "build upon our efforts over the past two years and our experience with the Sarbanes-Oxley Act - an Act that made great strides in creating whistleblower protections and requiring the internal reporting systems at public companies. From that experience, we learned that despite Sarbanes-Oxley, too many people remain silent in the face of fraud. Today's rules are intended to break the silence of those who see a wrong."

The 'no' votes were entered by Commissioners Kathleen Casey and Troy Paredes, their concerns being that the new rules would weaken corporations' internal compliance programs. The rules actually provide that whistleblowers are still eligible for a reward if they internally report wrongdoing to the company, and the company, in turn, reports it to the SEC. Additionally, a whistleblower could achieve a higher award if it is reported to the company first.

Commissioner Casey went on to elaborate that the rules could further decrease the bandwidth of the commission that is already struggling to keep up with limited resources. Commissioner Paredes believes that the new rules and process for providing tips to the SEC and then obtaining awards are "burdensome" and that individuals may not be as willing to report information.

Sean McKessy, Chief of the SEC's Office of the Whistleblower, commented that the agency would make changes if problems occurred. After a speech, delivered at Georgetown University's McDonough School of Business, he said, "If our program is not doing what it's intended to do, then we'll look at it and figure out ways to fix it."

McKessy also commented that, "Whistleblowers remain loathed in industry, but financial incentives should help the SEC ferret out more wrongdoing and could make investigations quicker and cheaper." He went on to say, "Look in a thesaurus under 'whistleblower' and see what kind of words you get out. I'm either the head of the office of the rats, or the rat finks, or rat bastards," McKessy said. "If even one fraud is stopped before it gets to a Madoff-type situation, then all the effort has been worth it."

Sources:

US SEC Says Will Fix Whistleblower Rule if Any Problems, Reuters, by Andrea Shalal-Esa, August 11, 2011

SEC's new Whistleblower Program Takes Effect Today, Securities and Exchange Commission, August 12, 2011

Price WaterHouse, A closer Look, The Dodd-Frank Wall Street Reform and Consumer Protection Act, PwC, May 19, 2011.

During the summer of 2008, a move by Federal prosecutors that was not publicized much outside of the legal community, led to newly relaxed guidelines for charging corporations with crimes. Not surprisingly, these new rules were good news for banks and their defense counsel.

Unlike previous, more aggressive Justice Department practices, the new rules move toward more deferred prosecutions and new guidelines that promise leniency when companies under investigation self report their deviations from the rules. The new guidelines allow the government to agree to delay or cancel a prosecution if the company under investigation promises to change operations and move toward compliance. Although used prior to the financial crisis, deferred prosecution agreements were officially offered as an alternative by the Justice Department in 2008. Critics believe this self-reporting approach risks letting companies off too easily.

"If you do not punish crimes, there's really no reason they won't happen again," said Mary Ramirez, a professor at Washburn University School of Law and a former assistant United States attorney. "I worry and so do a lot of economists that we have created no disincentives for committing fraud or white-collar crime, in particular in the financial space."

Deferred prosecution is not a tool used only at the Justice Department. After the Supreme Court overturned the conviction won by the SEC against Arthur Anderson, the SEC began pulling back from prosecutions. So now the SEC not only employs deferred prosecution, but also has added another alternative to prosecution, reports that chronicle wrongdoing at institutions "like Moody's Investors Service," often without punishing anybody.

Now government lawyers are outsourcing investigations. During the early stages of an inquiry, the government lawyers instruct companies to determine whether improper activities occurred. The companies then hire law firms to investigate and report to the government. This arrangement only heightens compromise and conflicts of interest whereby government lawyers allow companies and their lawyers to self police their activities.

This collaboration is even more widespread in the banking industry and dates back to the mid 1990's. In an effort to reduce regulators' workload, the Treasury Department requested that banks regularly report suspicious activities. This assumes that banks would willingly identify and report all wrongdoing, the likelihood of which is rather low according some academics.

Solomon L Wisenberg, former chief of the financial institutions fraud unit for the United States attorney in the Western District of Texas in the early 1990s said, "Traditionally, a bank would tell the Department of Justice when an employee engaged in crimes, but what do you do when the bank itself is run by a criminal enterprise? You have to be able to investigate without just waiting for the bank to give you the referral. The people running the institutions are not going to come to the D.O.J. and tell them about themselves."

Industry wide strategies to respond to investigations are being developed as a result of companies' cooperation with the government. "The corporate crime defense bar has this down to a science," said Russell Mokhiber, the editor of Corporate Crime Reporter, a publication that tracks prosecutions. "I interview them all the time, and they boast about how they've gamed the system."

In the end the process occurs behind closed doors. The Justice Department does not make public any details about its decision making in specific cases. We can never know why individuals at a company were never charged.

Source:
As Wall St. Polices Itself, Prosecutors Use Softer Approach, The New York Times; Business Day, by Gretchen Morgenson and Louise Story, July 7, 2011.

Final rules regarding the whistleblower provisions of the Dodd-Frank Act have been released by the U.S. Securities and Exchange Commission. The rules are effective as of August 12, 2011 and will apply retroactively to whistleblower tips made since July 21, 2010. If you provide original information about potential securities law violations you can receive a monetary award for that information if it results in a successful enforcement action by the SEC or a related agency.

The rules do not require that employees first report their suspicions to an internal compliance system prior to going to the SEC. This creates an incentive for whistleblowers to skip a company's internal compliance procedures. If this is done, compliance programs would be undermined and companies would not have an opportunity to quickly respond to a problem or self report prior to an investigation. In order to reduce the possibility of whistleblowers skipping internal compliance procedures, the SEC made rules that are intended to encourage the whistleblower to in fact use the company's internal compliance procedure.

Companies now have a strong incentive to encourage whistleblowers to report suspicions internally and promptly respond to reports. Potential whistleblowers should expect to see companies implementing strong internal reporting procedures as well as the latest investigation techniques. Corporate attorneys will be at the ready to protect the company's attorney-client privilege and attorney work product protections by being involved with the reporting and investigation of whistleblower claims. Companies will adapt a proactive approach with regulators to avoid surprises from whistleblowers or the SEC.

One provision of the rules is the 120 day look-back provision. When a whistleblower reports internally, he or she will have 120 days from the date of the internal report to provide the same information directly to the SEC without losing his or her place in line to claim a bounty award. Therefore, companies will have 120 days from receiving a report to do an investigation and determine if they wish to self report to the SEC.

Whistleblowers should expect to see various, easily accessible reporting methods including 24/7 access to anonymous reporting systems like free hot lines, web and email reporting methods and access to company compliance officers.

Training about reporting tools and availability will be emphasized.

Instead of whistleblowers being shunned, they will probably be recognized and praised.

Companies will most likely make it a requirement that all employees must report possible misconduct and violations and certify periodically that they are not aware of securities law violations not already reported.

On the investigation side of things, if the whistleblower identifies him or herself, he or she will most likely be one of the first witnesses interviewed. The whistleblower can expect to be in the loop on communication about the report because management will not want to make the whistleblower feel that no action is being taken.

Company attorneys will most likely conduct investigations or at least supervise the investigators doing the investigation. This is because the company will want to preserve and protect the company's attorney-client privilege and this can only be done if a company attorney is directly involved.

Expect to see more companies making more voluntary disclosures because the SEC will treat the company more favorably if the company has disclosed the wrongdoing before a whistleblower broadcasts the wrongdoing.

Source:
Dealing with tipsters under Dodd-Frank; New SEC whistleblower rules will require companies to examine and restructure their internal compliance programs; Corporate & Business Law, The Wall Street Journal, June 27, 2011

The "too-big-to-fail" problem is defined as the government using taxpayer dollars to rescue "systemically important" banks. Federal Reserve Chairman Ben Bernanke said that regulatory reform would fail if it did not contemplate a system where Goldman Sachs could take bankruptcy and its creditors lose money. So far banking reform has fallen short of what Bernanke wanted. More importantly, the solutions being debated may increase overall risk instead of reducing it.

The expectation of bailouts gives banks no incentive to take precautions against greater risks. Bank rescues can cause worldwide economic problems.

According to Ernie Patrikis, a partner in White & Case LLP, banking regulators want banks safe, sound, and big. Multinational firms see large money-center banks as indispensable. They provide investment banking and capital-raising. They are some of the best-run banks in the country per JoAnn Lilek of consulting firm Accretive Solutions and former CFO of Midwest Bank Holdings.

Many financial executives feel irresponsible management should suffer consequences, but worry that middle-market companies would be more vulnerable without a government safety net. Large corporations can increase their stable of lenders, smaller companies have to concentrate their credit relationships with one or two banks to get access to debt.

The question is "Can U.S. banking regulators solve the too-big-to-fail problem without causing financial institutions higher capital costs and subjecting banks customers to another credit crunch, or granting banks an incredible amount of political independence?"

It seems unwise to let operating entities of big banks to declare the kind of Chapter 11 in which they enter a turnaround situation or are acquired without government assistance. Under the current regulatory framework it would be nearly impossible per restructuring experts. Jacen Dinoff of KCP Advisory Group says "you're not going to see a bank file Chapter 11 and sit in bankruptcy winding down its assets while depositors petition as creditors to get percentage recoveries on life savings."

The Dodd-Frank Wall Street Reform and Consumer Protection Act does limit how far regulators will go in propping up a large bank. The FDIC has powers to dismantle the largest financial firms when they falter; the FDIC becomes a receiver for a bank if its failing presents a systemic risk to the financial markets.

During the Latin American debt crisis U.S. regulators took a very measured approach. They let the largest banks work out their problems over an extended period, rather than forcing them to recognize losses if they had to sell the debt immediately. Per Sandy Brown, of Bracewell & Giuliani LLP, "In the next crisis, multiple institutions will experience problems simultaneously, and regulators need flexibility to work in a manner that is not terribly hasty."

Time is not something regulators want to give failing banks. Globally there is a concentrated push to get national regulators to intervene sooner.

An early intervention strategy is no cake walk. There are at least two problems: First, spotting a bank that is headed for failure is not easy. Second, if U.S. regulators do catch problems early, there may be no resolve to take action.

Dodd-Frank ensures that taxpayers will no longer bear all the burden of federal rescues. In a perfect world banks and their investors will bear some or all of any losses. If regulators instill a sense of greater market discipline on investors, the hope is that investors will become better watchdogs of bank risk-taking.

No changes would necessarily change the risky behaviors of large banks or eliminate another global banking crisis. Nor would changes preclude the U.S. from rushing to the aid of giant, crippled institutions. So, the too-big-to-fail problem is still with us. And, it could get bigger. There is nothing to prevent more banks from entering the too-big-to-fail fraternity. Banks get bigger when larger institutions merge with troubled banks. And so it goes around and around.

Source:
The Big Fail, CFO Magazine, April 2011

The Securities and Exchange Commission (SEC) has approved rules that will entitle whistleblowers to receive 10 to 30 percent of the money they help the SEC collect through enforcement actions.

The SEC has rejected requests by business groups to require whistleblowers to notify the companies they are accusing of wrongdoing, prior to going to the SEC, to give them an opportunity to correct the allegations. Business groups and some Republican commissioners felt that by allowing whistleblowers to bypass companies' internal compliance programs, the agency might allow problems to become worse and that the SEC would be flooded with tips not related to securities enforcement.

The SEC commissioners were told by enforcement director Robert Khuzami that he saw no evidence of such problems and that the agency is already seeing an increase in high quality, well documented tips.

The biggest concession to corporations is that the SEC could give whistleblowers credit for taking their allegations to the company's own compliance program when determining the size of the reward.

Source:

SEC approves new rewards for whistleblowers, The Washington Post, May 25, 2011

Representative Michael Grimm, R., N.Y. plans to introduce legislation whereby employees would not be eligible for a Securities and Exchange Commission (SEC) bounty program unless they first report the wrongdoing to their company.

If the SEC determines evidence indicating that the employer's top management participated in the fraud or showed bad faith, the requirement for internal reporting to one's employer would not be necessary. Additional factors that would exempt employees from the internal-reporting requirement include the absence of an anonymous internal reporting system or hotline as well as the lack of human resource policies that prohibit retaliation against employees who report abuses and potentially fraudulent activities.

Following the implementation of the 2002 Sarbanes-Oxley law, corporations put into place hotlines and internal reporting channels. The fear is that with the lure of a multimillion-dollar bounty, these internal reporting channels would be ignored. The bounty program that was included in the Dodd-Frank financial reform law provides that employees reporting "original" information regarding possible SEC violations can collect as much as 30% of the sanctions greater that $1 million obtained by the SEC.

Conversely, whistleblower lawyers express concern that the internal-reporting requirement could be an impediment to the communication of tips to the government investigators. Additionally they fear that the requirements could provide companies the opportunity to get rid of any evidence of wrongdoing.

The SEC continues to work to complete the rules for the new regulations imposed by the Dodd-Frank legislation.

Source:
US Lawmaker Wants To Require Whistleblowers To Report Internally, The Wall Street Journal, May 5, 2011

A statutory deadline of April 21, 2011 had been imposed by Congress for the SEC (Securities and Exchange Commission) to issue rules for a whistleblower program. The SEC has not yet announced when the final rules of the program, a product of the Dodd-Frank financial reform law, are to be considered.

Rep. Barney Frank, D-Mass., has stated that the law does not indicate that the deadlines are "drop-dead." "There is no penalty for not meeting the deadline," Mr. Frank said during a webinar sponsored by the National LGBT Bar Association. "There's no gun at their heads. Nobody gets fired." Mr. Frank is the ranking Democrat on the House Financial Services Committee. He has communicated that if agencies need to have more time to develop rules based on the legislation, he is comfortable with the postponement of implementation of some of the provisions.

The type of timeline adjustment that Mr. Frank approves include the SEC's postponement to the first quarter of 2012 the rule requiring investment advisers with $25 million to $100 million in assets to switch their registration from the SEC to their states. However, there are other delays that are opposed by the Democratic Representative from Massachusetts.

Specifically, Republicans on the House Financial Services Committee have introduced a bill that would delay implementation of the Dodd-Frank derivatives rules until December of 2012. The Republicans argue that this extra time would allow regulators more time to meet objectives, consider costs, benefits and effects on the market. Mr. Frank considers this a stall in the event that a GOP president and Senate majority could do away with the provisions.

Republicans feel that the law is being implemented too quickly. Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee stated, "At the current breakneck pace, it is difficult for individual firms - especially small businesses - and the public at large to meaningfully participate and offer their insights and observations."

Mr. Frank countered, "I think they're making a political and economic mistake. We think it forces changes that are overwhelmingly constructive."

Sources:
SEC will Miss Deadline for Whistleblower Rules, The Wall Street Journal, April 21, 2011.

No gun at regulators' heads to hit Dodd-Frank deadlines: Barney Frank, InvestmentNews, April 26, 2011

The SEC (Securities and Exchange Commission) Whistleblower Office announced the appointment of a new leader on February 18, 2011. Sean McKessy will head the new whistleblower office in the Division of Enforcement. Administration of whistleblower provisions required by the Dodd-Frank Wall Street Reform and Consumer Protection Act will be performed by this office. Mr. McKessy was most recently corporate secretary at AOL Inc. and Altria Group Inc. Prior to that, he was senior counsel at the SEC's Division of Enforcement and Securities Counsel for Caterpillar, Inc.

Mr. McKessy said, "I am excited to return to public service and rejoin the dedicated staff of the Enforcement Division in this critical role. Whistleblowers often provide invaluable information that can help uncover securities fraud and protect investors."

Mr. McKessy's experience includes the development and supervision of internal compliance programs associated with federal securities laws. Additionally, he has been a corporate compliance officer and has been responsible for coordinating the reporting of violations to boards of directors.

"Sean is uniquely positioned to oversee the Commission's whistleblower program," said Robert Khuzami, Director of the SEC's Division of Enforcement. "The Enforcement Division and whistleblowers alike will greatly benefit from Sean's first-hand experience in bringing enforcement cases, handling whistleblower complaints and understanding the workings of internal corporate compliance programs."

Source:
Sean McKessy Named Head of Whistleblower Office, U.S. Securities and Exchange Commission, February 18, 2011

More than two dozen large U.S. companies including Google, Inc. and General Electric Co. have written letters to the Securities and Exchange Commission asking the agency to revise its proposed rules for awarding bounties to workers who report corporate fraud or wrongdoing. They want the SEC to require that workers report wrongdoing to employers in order to be eligible for payments under the agency's proposed "whistleblower" program.

Lawyers for whistleblowers contend that any requirement for internal reporting would kill the program because it would discourage a potential whistleblower coming forward for fear of being identified.

The bounty for whistleblowers program was created by the Dodd-Frank financial-overhaul law passed last year. The SEC has until April to finalize rules of implementation.

The SEC's draft rules proposed in November 2010 would not require whistleblowers to report suspected fraud or wrongdoing to their employers in order to participate in a bounty.

Some lawmakers may object to raising more hurdles to reward whistleblowers because of the SEC's initially brushing off warnings about Bernard Madoff's Ponzi scheme.

One Senator, Charles Grassley (R., Iowa), said whistleblowers should be entitled to "an independent and impartial review without putting a target on their backs".

Source:
Companies Prod SEC on Whistleblower Proposal, The Wall Street Journal, February 17, 2011