Article: Business Law

New SEC Rules Necessitate Review of Compliance Procedures for Georgia Businesses

By |Published On: May 10th, 2022|

The implications for Georgia businesses of the Security and Exchange Commissions (SEC) final rules concerning implementation of the Dodd-Frank Wall Street Reform and Consumer Protect Act that becomes effective August 12, 2011 are significant. While other similar laws exist to encourage whistleblowers to disclose securities violations by their employer, these other laws including Sarbanes-Oxley Act and Securities Exchange Act generally only apply anti-retaliation protections to public companies while Dodd-Frank extends also to private companies. Georgia businesses need to be aware of the impact of this whistleblower statute and structure internal compliance and reporting procedures to reduce liability. The statute permits financial compensation to be provided to whistleblowers that disclose information regarding SEC violations that result in a penalty of at least a million dollars. The employee who discloses information regarding a company’s SEC violations is eligible for a 10-30 percent reward for the information they provide. The requirements for a whistleblower claim under the statute include: (1) voluntarily providing; (2) original information; (3) resulting in a successful enforcement action; (4) with sanctions of at least a million dollars. The new whistleblower law does not require that an employee report SEC violations internally before disclosing tips regarding a Georgia business’s SEC violations. While the law does not require that employees utilize internal reporting and compliance systems before going to the SEC, the law encourages employees to utilize internal compliance procedures. The rules provide that use of internal compliance procedures may be a factor in increasing the amount of any financial recovery whereas lack of use of internal compliance procedures may be a factor in reducing the whistleblower’s recovery. Any information discovered by the company’s internal investigation that is disclosed to the SEC will be credited to the employee whistleblower. The rules also encourage use of internal compliance procedures for SEC violations in Georgia businesses by providing a period of time for employees to report information internally. The rules permit a 6-month look back window during which an employee can utilize internal channels before making a claim to the SEC. An internal report does not preclude disclosing the information to the SEC and obtaining compensation as long as the information in the internal investigation is later disclosed to the SEC. The rules also provide anti-retaliation protection to employee whistleblowers. It is important that Georgia business owners understand the importance of implementing effective SEC compliance procedures and protections for employees who report violations under the new SEC whistleblower law. The law permits a private action and will likely lead to an increase in whistleblower actions because of the substantial financial incentives. Because the program encourages employees to utilize a Georgia company’s internal reporting procedures, it is also likely to lead to a substantial increase in internal company reporting of SEC violations so companies need to have a compliance system in place to handle the increase in potential reports. Georgia companies should also develop a corporate culture that promotes compliance with securities laws. It is important that a Georgia business conducts a review and updates its SEC compliance procedures so that they are able to process a possible increase in the number of potential disclosures. Because of the broad applicability of the Dodd-Frank anti-retaliation protections that extend even to private companies, Georgia businesses should implement procedures to safeguard the identity of whistleblowers from supervisors. This will help alleviate the threat of retaliation claims arising from subsequent adverse employment actions. Our Georgia business litigation law firm understands the importance of minimizing the impact of litigation in terms of cost and time for our Georgia business clients. We will explore all options to resolve your business litigation dispute in the most economical way while carefully protecting your company’s best interest. We invite you to contact our Georgia business litigation law firm so that we can evaluate your business litigation dispute and explore potential litigation strategies.

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