New York managing partner George A. Stamboulidis and associate Alberto Rodriguez co-authored an article featured prominently on The National Law Journal website.
The article, titled “Dodd-Frank Will Require Changes in Self-Reporting Process: In-House Counsel Must Retool Investigative Strategies in Light of the Act’s Whistleblower Provisions,” was published online November 15, 2010. The article discusses the impact this legislation is likely to have on in-house legal departments.
Stamboulidis and Rodriguez observe that the Dodd-Frank Act provides powerful incentives for whistleblowers to report alleged misconduct to regulators, noting that the U.S. Securities and Exchange Commission has already reported an uptick not only in the quantity, but also the quality, of whistleblower tips it is receiving. Their article states that the “coming legal tidal wave of ‘whistleblowing’ activity poses unprecedented challenges to in-house counsel, who now must retool their investigative strategies and the ‘self-reporting calculus’ they employ to determine when and how to report possible corporate misconduct to regulatory authorities.”
The article details how the Act amends and expands the scope of the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002—creating additional protections for whistleblowers, as well as monetary rewards for individuals who provide information leading to a recovery of more than $1 million in sanctions.
As a result of this regulatory change, “In-house counsel will have to take a hard look not only at how the incentives and protections may change their compliance policies but also the manner and timing in which they self-report suspected criminal activity to the SEC and other regulators,” Stamboulidis and Rodriguez explained.
The article provides several suggestions for companies in preparation of potential increased whistleblower activity. For example, the authors recommend that companies review and enhance internal reporting procedures to make it easier for them to identify suspicious activity and take remedial action before the involvement of regulators. The authors also advise companies to be particularly diligent in maintaining confidentiality in an internal investigation, “so as not to alarm any employees or provide any information that may form the basis of a tip to the SEC.” Finally, they encourage companies to document remedial actions for actions taken prior to self-reporting—especially when the company has taken employment action against those involved in the misconduct, since those individuals may bring a retaliation suit under the Act.
Stamboulidis and Rodriguez summarized the implications of Dodd-Frank: “[C]orporations now arguably have less time, information and guidance on when to report suspected unlawful activity. Dodd-Frank’s attractive new monetary incentives may cause employees to bypass corporate reporting programs and report suspected criminal corporate activity directly to the SEC. This will leave corporations in the unenviable position of competing with their own employees to reach regulators with information regarding alleged corporate misconduct.
“Being ready for the spotlight requires careful planning and preparation that should begin now,” they concluded.
At Baker Hostetler, Stamboulidis also serves as the co-leader of the firm’s White Collar Defense and Corporate Investigations practice. Rodriguez is an associate in the firm’s Commercial Litigation and White Collar Defense and Corporate Investigations practices.
VIEW FULL ARTICLE