Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, March 25, 2012

Rapp on the SOX Whistleblower Provision

Mutiny by the Bounties? The Attempt to Reform Wall Street by the New Whistleblower Provisions of the Dodd-Frank Act, by Geoffrey Christopher Rapp, University of Toledo - College of Law, was recently posted on SSRN.  Here is the SSRN:

The 2010 Dodd-Frank Act authorizes the Securities and Exchange Commission (SEC) to pay bounties to whistleblowers. This provision answers a call made by a number of legal scholars. The whistleblower protections of the 2002 Sarbanes-Oxley Act (SOX) had proven ineffective in stimulating insiders to report corporate and financial fraud. Unfortunately, time may reveal that Dodd-Frank, like SOX before it, was a missed opportunity. The new bounty program is limited to cases in which the SEC obtains $1 million in enforcement sanctions, an overly restrictive condition in an era when the SEC shows a continued preference for non-monetary penalties like cease-and-desist orders and obey-the-law junctions and an increasing preference for “therapeutic” sanctions. More fundamentally, however, the new whistleblower law fails to create true qui tam structures akin to those in the Federal False Claims Act. Whistleblowers under the new law lack the essential ability to direct litigation independent of federal authorities. This Article proposes an Informer’s Act model as a corrective measure to help Dodd-Frank fulfill its potential.

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