Emtrain Blog

Blowing the Whistle on Insider Trading

Posted by Timothy Crudo

October 28, 2014

The Dodd-Frank Act provides an SEC hotline that rewards whistle-blowers up to 30% of any recovery. Will this encourage employees to bypass a company’s internal compliance and report directly to the regulators? Here are my thoughts on the effects of this statute.  

blowing the whistle on insider trading

It’s too early to tell whether the law is having that effect, but a related issue working its way through the courts could have a similar impact.  In Asadi v. G.E. Energy, the Fifth Circuit, siding with the company, ruled that Dodd-Frank’s anti-retaliation measures, which protect whistle-blowers from retaliatory employment action by their employers, only protects employees if they report directly to the SEC, not to the company’s compliance personnel.  That same issue is at stake in an appeal currently pending before the Second Circuit, where the SEC has argued that those protections should apply also to employees who report wrongdoing to their employer.

It’s not a stretch to assume that employees would be more likely to go to the SEC if they think they won’t be protected if they report internally.

Anecdotal evidence suggests that most employees would rather report their concerns internally than pick up the phone and call a federal regulator.  But Dodd-Frank’s incentives; a potentially life-changing, lucrative bounty payment and — depending on how the law ultimately is applied — protection from adverse employment action could encourage more than a few employees to forego company processes and report directly to a regulator. It’s never good to be hearing about a problem for the first time from a regulator.

Employees are more likely to report their concerns internally if the company has a thoughtful compliance program that employees trust and know will be taken seriously.

How do you feel about your organization's compliance program? Share your thoughts with me in the comments or email me at Experts@emtrain.com.

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tim-crudo Timothy Crudo             

An expert in corporate governance and white collar criminal matters, Tim regularly advises corporate boards and executives on topics such as: insider trading, securities violations, accounting fraud, and other corporate crimes. As a former Chief of the Securities Fraud Section of the U.S. Attorney’s Office in San Francisco, Tim was the lead prosecutor in a number of high-profile criminal trials of senior corporate executives in Silicon Valley. Currently, he is a partner at Coblentz Patch Duffy & Bass, where he heads up the firm’s White Collar Defense and Government Enforcement Practice Group. As a trial lawyer, he focuses on investigations and cases brought by criminal prosecutors, government regulators, and shareholders in white collar, securities, and corporate governance matters as well as internal corporate investigations..

Topics: Business Compliance, Insider Trading