August 26, 2014
Dodd-Frank Whistleblowing Check-In
Posted by David Zaring

Joe Nocera thinks that the new SEC whistleblower program is a winner, as it is rewarding people who go first to the firm, and only then to the agency, and the promise of a payday.

The Dodd-Frank law has provisions intended to protect whistle-blowers from retaliation, but there are certain aspects of being a whistle-blower that it can’t do anything about. “People started treating me like a leper,” recalls Lloyd. “They would see me coming and turn around and walk in the other direction.” Convinced that the company was laying the groundwork to fire him, he quit in April 2011, a move that cost him both clients and money. (Lloyd has since found employment with another financial institution. For its part, MassMutual says only that “we are pleased to have resolved this matter with the S.E.C.”)

In November 2012, MassMutual agreed to pay a $1.6 million fine; Lloyd’s $400,000 award is 25 percent of that. It was a slap on the wrist, but more important, the company agreed to lift the cap. This will cost MassMutual a lot more, but it will protect the investors who put their money — and their retirement hopes — on MassMutual’s guarantees. Thanks to Lloyd, the company has fixed the defect without a single investor losing a penny.

Could be.  The most difficult cases of this kind are those posed by lawyers or compliance officers who go outside their firm, rather than staying within it, when they raise questions.  That's something that seems to be happening at Vanguard right now, and Dave McGowan thinks such disclosures should be okay.  Disclosing private documents more broadly, he feels, looks more like theft:

a former in-house lawyer who has filed a complaint in NY alleging Vanguard has underpaid federal taxes.  Vanguard is reported to accuse the lawyer of breaching confidentiality; the lawyer has asked the SEC to intervene on his side.

Such cases may raise two distinct issues: the report itself, which may fall within exceptions to confidentiality in a Model Rules jurisdiction or under the SEC's rules, and backup for the report in the form of information--such as documents either in hard copy or digital form--the reporting lawyer might take from his or her employment.  Even if we assume the report is protected the taking of documents raises distinct issues regarding client property.  

I tend to think those issues should be resolved as issues regarding the report are resolved--i.e., taking such information does not violate a duty to a client to the extent the information is reasonably necessary to facilitate a permissible report.  In essence the report would create a privilege (in the tort law sense) covering the disclosure to enforcement officials or courts; no privilege would attach if the lawyer put the documents up on the internet or mailed them to a reporter.  

 

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