• Understanding the SEC Whistleblower Program

    by  • May 7, 2012 • 0 Comments

    Section 922 of the Dodd-Frank Act requires that the SEC provide an award to corporate whistleblowers–individuals that report to the SEC violations of federal securities law.

    Whistleblowers’ Rewards

    Who is Eligible for the Rewards?
    Last May the SEC enacted a rule (which became effective last August) that provided rewards for individuals who come forward with novel information that leads to an SEC enforcement action in which over $1,000,000 in sanctions is ordered.

    What are Whistleblowers’ Rewards?
    Whistleblowers are entitled to an award between 10% and 30% of the money collected by the SEC enforcement action.

    Retaliatory Protection for Whistleblowers

    The rule also protects whistleblowers from retaliatory actions by providing that employees who are wrongfully retaliated against may sue their employers in federal court for reinstatement, double back pay, litigation costs, expert witness fees, and attorneys fees. Additionally, the SEC may bring an action against an employer for retaliatory actions.

    Whistleblowers & Internal Reporting

    The Dodd-Frank whistleblower provisions take a neutral approach to internal reporting. Whistleblowers do not have to report internally, but if the whistleblower does report internally, the whistleblower still may receive an award for coming forward with the information. The whistleblower’s “place in line” for reporting information will be kept from the date that he or she reports internally: subsequent disclosures to the SEC will not prevent the internally reporting whistleblower’s later disclosure to the SEC from being new information for purposes of determining eligibility for the whistleblower rewards. If the whistleblower’s internal reporting leads to a company investigation, all the information from the company’s investigation will be deemed to have come from the whistleblower for purposes of determining the whistlebower’s reward. Whistleblowers have 120 days from the first date of internal reporting to report the information to the SEC.

    Many corporate officers and directors are concerned that whistleblowers don’t have enough incentive to report internally, which would give the company a chance to investigate the allegations, and immediately stop practices that violate securities law.

    A Year Later What Do We Know?

    The SEC Rule was enacted last May, but it only took effect nine months ago. The short answer to the “what do we know now?” question is not that much. The SEC has reported receiving thousands of tips, but there is still a paucity of case law, and as many readers will know federal court cases usually take more than a few months to conclude. The biggest news item on the whistleblower law, is the recent disclosure by the SEC of an anonymous tippers’ identity. The whistleblower law enables tippers to provide information anonymously, but due to a recent gaffe, the SEC accidentally revealed an anonymous tipper’s identity.

    What Should Companies Do In Reaction to Whistleblower Law?

    1. Companies should incentivize internal reporting to create a culture of compliance.
    2. Companies should have reporting policies and employment manuals that make it clear that internal reporting is encouraged.
    3. Employees should be educated as to these policies, and the contents of these manuals. It is not enough merely to hand your employees some legal documents and policies, and expect these materials to be read and understood. Management needs to take a proactive approach to educating company staff on company policy.
    4. Employers should provide employees with multiple avenues for internal reporting. An anonymous tip line may be a good option. And employees should have at least two individuals up the management chain, including board members, whom they could approach with compliance concerns.
    5. Companies should have a self-reporting policy. When companies discover violations of federal securities laws, they should report the violation to the SEC. Companies that self-report are very likely to receive lighter punishment than companies that are discovered to be violating securities laws by other means, including whistleblowers.

    If you have any questions about SEC whistleblower law, please feel free to post a comment below, contact inVigor Law Group, or subscribe to our free Q & A service.

    Read more →

    Citigroup Shareholders Reject Compensation Plan

    by  • April 24, 2012 • 0 Comments

    Last week, Citigroup Shareholders rejected a proposed compensation package for the corporation’s top executives. The vote took place at Citigroup’s annual shareholder meeting. The compensation package, created by Citi’s Executive Compensation Committee, was voted down by 55% of Citi’s shareholders. The compensation package included $15 million for CEO Vikram Pandit.

    Since the Dodd-Frank act, publicly traded corporations are required to give shareholder’s a “say on pay.” However, the shareholder vote is non-binding. The final decision on Executive Compensation ultimately rests with the board of directors. While non-binding, the shareholder’s vote sends a strong message to the board. If this message is not heeded by the board, shareholders may elect to pursue other alternatives such as removing directors. Citi’s Chairman, Richard Parsons said that the board takes the vote very seriously, and that it will carefully consider it.

    ISS, the shareholder advisory services firm, recommended to Citigroup shareholders that they vote against the compensation package, as it lacked sufficient incentives to align performance with pay, and the compensation was comparatively higher than peer companies with superior shareholder returns.

    This shareholders voted against this executive compensation package even though the vote came shortly after news that Citigroup’s quarterly profits exceeded expectations.

    Read more →

    Duties to Preferred Shareholders

    by  • April 17, 2012 • 0 Comments

    Generally, the duties directors owe common and preferred stockholders are not differentiated. However, under Delaware law a board may owe different duties to preferred and common stockholders. The terms of both common and preferred stock are detailed in the certificate of incorporation. Preferred stock, as the name suggests, generally has additional or special rights. For [...]

    Read more →

    Creating a Board Committee

    by  • March 21, 2012 • 0 Comments

    A corporation’s board of directors can create one or more committees to perform discrete tasks within the company. Committees can be delegated much of the authority that belongs to the board of directors. Committees in the Bylaws Corporations will generally have a committee section in their bylaws. In drafting bylaws that govern committees, it is necessary to [...]

    Read more →

    Board Committees – An Overview

    by  • March 14, 2012 • 0 Comments

    Every state corporation statute authorizes the use of board committees. Smaller companies often don’t have a need for board committees, but boards of larger companies generally have several standing committees. These committees are tasked with tackling discrete duties within the board’s domain. Committee Requirements No particular board committee structure is required by state law. However, [...]

    Read more →