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Posted: August 31, 2011

Whistleblower bounty: This isn’t your dad’s SEC

Digital revolution forces white collar agency to keep up with the times

Keith DuBay

Back in the pre-Internet days, we business reporters really had to work for our stories. It was considered a necessary skill to know how to look up and buy - yes, buy - public reports filed with the SEC by companies. 

We had to go to the library to do story research, look up newspapers from other cities and microfilm of real estate or legal documents. What wasn't free in the library cost a bundle to obtain, from such companies as Lexis-Nexis or Bloomberg. Newspapers weren't about to pay for pricey subscriptions to make life easier on reporters. It put all the power into the hands of sources. When, as a reporter for the Rocky Mountain News in the early 90s, I would ask former Denver SEC chief Bob Davenport if a particular company was being investigated, I would have to interpret his impish grins as yes or maybe and frowns as no.  

Everything's the opposite today. What took days to research now takes minutes on a search engine. When a company files a quarterly or annual report, it is freely available on the SEC's website. Now Congress has taken it even further with the SEC's new whistleblower rules, passed in May in relation to the Dodd-Frank Wall Street Reform and Consumer Protection Act. Tipsters who report factual information that leads to a fine of more than $1 million - if any money is actually collected - can earn a payout of 10- to 30 percent of the proceeds. All of this is being administered through the use of digital media. 

"This is a piece of the modernization of the SEC," said Julie Lutz, associate regional director of the SEC's Denver office. "It's more of an Internet-based thing than ever before. It gives us a greater reach. We are doing business in a different way." 

It seemed remarkable to me to even see Lutz speak at a panel hosted by the Perkins Coie law firm in Denver. I mean, an SEC official, giving out information and insight like anyone else, shoulder to shoulder with Matthew Kirsch, chief of the Colorado U.S. Attorney's Office economic crime section; M. Sean Radcliffe, VP of IHS Inc.; Perkins partner and former Chicago federal prosecutor T. Markus Funk; Perkins partner and former state and federal prosecutor Pravin Rao; and Jason Day, a corporate counselor and partner with Perkins Coie. You wouldn't have seen that in the old days. Lutz said the new openness and modernization was initiated by former SEC chief Mary Shapiro. 

To earn a whistleblower bounty, a tipster must provide "original information" about a possible federal securities law violation that has occurred, is ongoing or is about to occur, Funk said. This could mean any securities law violation, from organized and systemic fraud to bribery in a foreign country involving a U.S. company. And believe this or not: If you are caught up in propagating the fraud, you can blow the whistle on yourself, provided that you aren't convicted of a felony. Your whistleblower proceeds are deducted from any fines you pay. I didn't make that part up; Congress did. 

The SEC's whistleblower portal has a welcome video from the chief of the Office of the Whistleblower and a form to fill out your tip, either online or by printing out a PDF and mailing it in. If you do it anonymously, you have to be represented by a lawyer. This is truly power of the people.  

Companies are ramping up their own anonymous tip lines administered by third-party companies to protect themselves. The SEC wants tipsters to report to their own company in addition to the SEC and has a rule that keeps the tipster's "place in line." The whistleblower rule allows companies 120 days to investigate the tip and then address the matter with the SEC. 

"Self-reporting is going to be big," IHS's Radcliffe said. "We have to reach out to the various agencies and ask, how do we do this right?" 

However it's done, it will be using the power of digital in this age of new media. 

Ad Age says that iCrossing, the No. 1 agency by U.S. search revenue with $92.4 million in 2010, is making a push toward producing branded videos, blogs and other content for clients. Some other agencies are following suit. This is a push towards content marketing. I hope that's good news for writers. The agency plans to tap into parent company Hearst Corp.'s "vast network of freelancers." iCrossing's blog contains some good pieces, such as "Why chief marketing officers need content marketing."

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Keith DuBay of BlueCoast Media Group is a 30-year veteran of the media as reporter and editor, author of more than 4,000 articles and columns focusing primarily on business coverage. He has won more than 30 awards for reporting and writing, has served as communications director of the Transit 97 campaign and has been in private business with his own media relations firm and as a business development officer for two investment banking firms. He helped co-found the Denver Chapter of the Association For Corporate Growth in 1999 and later served as executive board member and president. Contact him at keith@bluecoastmediagroup.com.

 

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