This essay is a summary of an article written by peter Henning who keenly follows issues involving white collar crimes and securities law. The article is a summary of the Dodd-Frank Act which has been enacted as a law. The law is expected to make a significant contribution towards fighting white collar crime particularly by rewarding whistle blowers. The article however examines the limitations the Act is likely to face especially on the part of the whistle blowers. The article gives illustrations of white collar crime which would have been exposed early if stronger incentives would have been available for the whistle blowers.
Battling White Collar Crime
According to Henning (2010), the Act is meant to strengthen the authority of the Securities and Exchange Commission (S.E.C). The activities involved in the securities are quite complex and it is possible for fraud processing to take place without the knowledge of the S.E.C. Fraudulent processes can however be easily intercepted if information is given out to the S.E.C. which will lead to the interception of such processes. Such information can only be given by the insiders who have a good knowledge of what takes place.
The article gives an illustration of the Pequot Capital management whereby the S.E.C. was unable to charge Mr. Zilkha because of lack of evidence. However upon the wife disclosing e-mails which were undisclosed early administrative charges were laid against Mr. Zilkha and a settlement of 28 million dollars was made with a one million dollars being paid to the wife for whistling. The article notes that accounting frauds take place over a long period time. Though some junior personnel may be aware of such irregularities they may be unwilling to risk their jobs and careers by disclosing such information. The article mentions the case Dell which had engaged in fraudulent actions between 2002 and 2006. The company did this in order to meet their earnings projection. Henning (2010) argues that such type of a fraudulent action would have exposed early if there were a proper mechanism for protecting and rewarding the whistle blowers.
Apart from laying out a strong financial incentive of rewarding at a minimum percentage of 10 with the maximum being 30 of the monetary sanctions imposed in a case the Act also spells out conditions which are meant to protect the whistle blowers from possible discrimination due to a whistle blowing action. The act demands that for a whistle blower to be eligible for the award, he/she has to provide the original information about a fraudulent action.
Henning (2010) argued that though the Act has some financial rewards attached to the action of whistle blowing he warns that it may take a lot time before (years) before an award is made if at all it will be made. Another challenge likely to be faced by the S.E.C. is the separation of the valid information about violations from unfounded accusations. In the article it is noted that the S.E.C. is likely to take any allegation seriously especially taking into consideration the fact that the commission had not taken the debacle involving the Bernard Madoff's Ponzi scheme seriously. Investigations on corporate activities are expected to increase with the S.E.C. and the justice department recording increased activities.
This article is excellently written and gives all the relevant information required. The author takes a critical angle in examining his topic and gives relevant illustrations of the application of the Act had it been enacted early. The author also critically examines the possible challenges which are likely to come up as result of the incentive which the act brings.
