Whistle-Blower Lawyers Hope GOP Won’t Kill SEC Rewards for Co-Conspirators

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By Andrew Ramonas

A Republican proposal to bar whistle-blowers who participated in the misconduct they report from collecting a bounty could harm SEC enforcement efforts, whistle-blower lawyers told Bloomberg BNA.

Allowing wrongdoers to obtain a whistle-blower award isn’t “ideal,” former Securities and Exchange Commission whistle-blower chief Sean McKessy told Bloomberg BNA. However, he said, with the inducement, enforcers can use the “little fish” to get the “big fish” in securities law violations.

“If only one culpable person came forward, we’d all agree it was worth keeping that door open,” said McKessy, a partner at Phillips & Cohen in Washington.

An SEC representative didn’t immediately respond to a request for comment.

Updated Version

The bar on bounties for co-conspirators was included in a memo circulated to Republican lawmakers by Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee. Hensarling is preparing to introduce an updated version of his Financial Choice Act. The SEC created the bounty rules when it set up its whistle-blower office in 2011 under the Dodd-Frank Act.

Whistle-blowers who participated in misconduct aren’t guaranteed a reward, McKessy said. If they do get a bounty, it likely would be lower than what they would receive if they didn’t participate in wrongdoing, he said. Under the bounty program, eligible whistle-blowers can receive from 10 percent to 30 percent of sanctions totaling at least $1 million.

The agency might have trouble uncovering some violations if it couldn’t reward co-conspirators for their help, said Washington lawyer Daniel J. Hurson, who represents SEC whistle-blowers.

Whistle-blowers “go through a lot of hell,” Hurson of the Law Offices of Daniel J. Hurson told Bloomberg BNA.

Hensarling spokesman Jeff Emerson declined to comment on the whistle-blower provision in the memo, telling Bloomberg BNA he hasn’t seen the document and couldn’t confirm its accuracy.

The U.S. Chamber of Commerce has pushed for a prohibition on co-conspirators receiving a bounty.

Marcia Narine, a former Ryder System Inc. executive, testified on behalf of the Chamber in a 2011 House Financial Services committee hearing on Dodd-Frank whistle-blower provisions, saying culpable individuals shouldn’t get rewards.

“This could lead to the bizarre result that an agent who is terminated after a company realizes that he has been committing unauthorized bribes for which the company could be liable could turn the company in to the SEC and DOJ for violations of the Foreign Corrupt Practices Act and could then conceivably collect a multimillion reward when the government fines the company,” she said in testimony prepared for the hearing.

Chamber spokeswoman Erica Flint declined to comment.

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bna.com

To contact the editors responsible for this story: Phyllis Diamond at pdiamond@bna.com; Seth Stern at sstern@bna.com

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