SEC opens comment period for whistleblower rules while FASB backtracks again on contingency disclosure
Dear readers,
We haven’t been able to say this in a while but it has been a good week for in-house corporate governance people. I don’t need to tell you about all the regulation that has been piling up and threatening to overwhelm us all. But before you all despair, there has been some good news.
This past week or so has seen some small, but significant respite. Firstly, the FASB has once again backtracked on reporting of loss contingencies. Then the SEC came out with its proposed whistleblower rules – which attempt to allay fears about disincentives to internal disclosure. And lastly we saw the Republicans take back the majority in Congress.
So what does all this mean and why is it good? The aggressive new rules that FASB has been pursuing for years were supposed to take effect by the end of the year – that is not going to happen now. The rules, as I discussed on a panel at a recent NIRI event alongside Rose Romero from the SEC and Dionne Rousseau from Jones Walker, are a big deal and could lead to considerable uncertainty, dramatically increased workloads for in-house legal and disclosure teams, a very real risk of increased class-action lawsuits from investors, and a general reduction in the quality of information being presented to shareholders.
There are those that think expended contingency disclosures are a good thing, and in a few narrow instances they are probably correct. It appears, however, that those people are few and far between and this most recent capitulation by the accounting board is a sign that the rule may never see the light of day. So all you in-house lawyers and compliance folks can breathe a collective sigh of relief. That is one small thing we don't have to worry about for next year.
Then we have the SEC rule proposal on whistleblower payments. As we report in the cover story of the November issue ‘The SEC’s whistleblower bounty’ there is a lot of concern that employees will stop reporting in-house and instead chase the big money by going directly to the SEC. To their credit the staff at the SEC recognize this risk and think the proposed rules will minimize that risk.
The centerpiece of the proposal is a 90-day ‘grace period’ in which informants can make a report internally while still preserving their ability to go to the SEC and be compensated.
Another important question raised in the proposal is who should be eligible for a payout. The way it stands at the moment anyone with access to privileged information – lawyers, compliance employees, auditors, board members, and so on – will not be eligible, although they can still blow the whistle.
The one question I think is most interesting is if people involved in any wrongdoing can be eligible for an award. The rule says that people who are criminally convicted of involvement in wrongdoing are not eligible, but it says nothing about civil suits. And what about people who are granted immunity for sharing information? There is a real possibility that some people may be able to benefit from their own wrongdoing.
This new regulation is a very serious situation for corporate issuers and you have a very real chance to influence how the final rules will look. The comment period is open until December 17 so you have time to read the release – all 181 pages of it – gather your thoughts and submit your answers. If you need help on how to write a comment letter we have written a number of articles on the topic in recent weeks. You can find one here.
And then there is the election. With the GOP gaining ground it will be interesting to see what changes might be made to Dodd-Frank. Many Republicans have been vocal about repealing parts of the bill and watering down others. There might be significant political will to soften some of the regulation, although it is going to take some time before anything actually happens. Take advantage of the wave and see if you can't influence the outcome.
