Whistleblower rules -- most hedge fund employees can bypass internal compliance....

Sam Lieberman, Of Counsel in the Litigation Group of Sadis & Goldberg has contributed an article to the June 9th edition of Thompson Reuters Accelus entitled "Whistleblower rules – most hedge fund employees can bypass internal compliance, but have no remedy for internal report retaliation”. On May 25, 2011, the SEC adopted final rules implementing the whistleblower provisions of the Dodd-Frank Act (whistleblower rules or Rules). The Rules permit most employees to bypass internal compliance programs and report fraud allegations directly to the SEC to obtain a whistleblower award. Instead, only certain key employees must report fraud internally before they can become eligible for an award, including officers, directors, partners, and compliance and internal audit personnel. Separately, the SEC has clarified that employees of private firms like hedge funds are not protected against retaliation for internally reporting wrongdoing. Thus, although the whistleblower rules will somewhat bolster hedge fund internal compliance programs by incentivizing key employees to report internally, the Rules also create strong incentives for most employees to bypass internal compliance. Further, the Rules will leave key hedge fund employees in a Catch-22 of being required to report wrongdoing internally to get an award, and often as a job requirement, while having no legal remedy for retaliatory firing. This will harm internal compliance programs by chilling key employees from robustly investigating and reporting wrongdoing posing a threat to employers.

If you would like to discuss the article in greater detail with Sam, his contact information is below.

Sam Lieberman, 212.573.8164, slieberman@sglawyers.com


Cheryl Spratt