New York partner Marc Powers, leader of Baker Hostetler's national Securities Litigation and Regulatory Enforcement practice team, is quoted in the March 1, 2010, edition of Inside Counsel magazine in the article, "Congressional Crackdown: Investor Protection Act Enhances SEC Power."
According to the article, the Investor Protection Act arms the Securities and Exchange Commission (SEC) with enhanced enforcement ammunition, in the wake of its "failure to detect and prevent the breakdowns that contributed to the recession." Whatever law eventually emerges, the message from the House is clear: One way or another, change is coming to Wall Street, according to the article.
"This is sweeping legislation that's trying to attack problems that came to light as result of the financial meltdown," said Powers. "Certain clear areas of concern that may have contributed to [the meltdown] are the pieces that will most likely be adopted." Companies that are investors themselves would find some relief under the proposed legislation, said Powers. If a company winds up in a dispute with a broker over lost funds, he says the company would have more leverage to argue that the broker failed in its fiduciary duty.
One component of the proposed legislation is the whistleblower bounty provision. In addition to the protections Sarbanes-Oxley affords whistleblowers, the bounty program would reward people whose tips result in a successful enforcement action with a payout of up to 30 percent of any monetary sanctions exceeding $1 million, according to the article. Companies also face the challenge of employees who directly approach government regulators instead of going through internal fraud reporting channels, according to the article. Congress could remedy this concern by adding a stipulation that considers whether an employee first reported through internal procedures when the SEC determines how large a bounty the whistleblower receives. Conversely, companies could provide their own incentives to employees who report fraud internally rather than contacting regulators first, Powers said.