Congressional Crackdown: Investor Protection Act Enhances SEC Power

That's the idea behind the whistleblower bounty provision of the Investor Protection Act. 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.

The possibility of a whistleblower bounty raises several alarms for companies, not the least of which is the potential for false reporting from employees greedy for extra cash, says Edward Johnsen, a partner at Winston & Strawn. Deliberately or innocently, people might be more likely to speak up even if there's no whistle to blow.

In this case, even if the respondents knew about the fraud, the Supreme Court ruled they wouldn't be liable since they didn't defraud their own investors.

But under the proposed act, companies would be liable not only for knowingly aiding in another company's securities fraud violation but also for recklessly--if blindly--assisting in the fraud. This creates a risk that an otherwise innocent company could be pulled into fraud litigation over what seemed to be an ordinary commercial transaction, Weiss says.

Associate Editor

Lauren Williamson

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