On his On Securities blog yesterday, attorney Marty Rosenbaum identifies the whistleblower provision of the Dodd Bill (the Restoring American Financial Stability Act of 2010) as the true “sleeper” for public companies in the massive bill. Under Section 922 of the bill, Rosenbaum notes,

if a whistleblower provides information on a securities law violation that leads to monetary sanctions of more than $1 million, the SEC will be required to pay the whistleblower an amount ranging from ten percent to 30 percent of what has been collected.

As the House bill also contains a similar provision, it seems likely that a whistleblower provision will be part of the final bill that President Obama has asked to receive by July 4.

Rosenbaum views the whistleblower provision as a “sleeper” for public companies because while it has received less publicity than many parts of the bill, its impact could be enormous if, as expected, it encourages employees to report perceived violations in a greater number of cases than before. He notes that public companies must prepare for the greater risk of SEC investigations and enforcement proceedings, ensure that their whistleblower policies are up to date, and make sure that their whistleblower processes are scalable for greater number of reports.

I would add that the whistleblower provision also holds the potential to be a major "sleeper" for the SEC, as well. As addressed in the panel discussion I hosted recently at the National Press Club (see video below at the 52:20-55:40 mark), former and present SEC officials agree that the whistleblower provisions will pose a huge challenge to the SEC if the agency does not carefully plan out its response. John Stark, the former head of the SEC's Office of Internet Enforcement who is now with Stroz Friedberg, said the avalanche of complaints expected to result from the new provision may end up being among "the most dramatic things to ever hit the SEC."

Thomas Sporkin, who leads the SEC’s new Office of Market Intelligence, said that he expects that any future new whistleblower program will be administered through his office. He said that as part of the large information technology project he is now leading to revamp the intake process for tips and complaints, OMI is accounting for the likelihood that a new whistleblower statute may be imminent. Sporkin added that OMI is studying details such as how whistleblowers should identify themselves in the process and how to track whistleblower tips, and said that OMI may need to have several employees specifically dedicated to carrying out the whistleblower program.

The number of whistleblower complaints that will result from the expected legislation remains a mystery at this point. When this number becomes clearer, however, let's hope the the SEC won't immediately find that it "needs a bigger boat."

SEC Enforcement: Past, Present and Future from Securities Docket on Vimeo.