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Whistleblowing Pays

Sure, sure, whistleblowing pays off by relieving one’s conscious. But did you know it now also pays a much higher monetary reward?

With the Dodd-Frank Wall Street Reform bill now in place, whistleblowers will not only have even more protection from their employer seeking revenge, they will also be rewarded financially at a much greater rate than in the past. According to the recent reform, successful informants will be entitled to collect “10% to 30% of the wrongdoers’ payout” to the securities and exchange commission.

Historically, the SEC could only reward whistleblowers who were involved with insider trading cases. And apparently, they weren’t very generous.

During its 20-year existence, the SEC’s whistle-blower program has paid out only $159,537 to five claimants. No wonder observers of securities fraud have had little incentive to spill the beans. “Basically, [whistleblowing] ruins your life,” says Luigi Zingales, a professor at the University of Chicago Booth School of Business who has studied the issue of whistle-blowers. “What is worth your life getting ruined? It’s pretty expensive.”

Expensive no more?

That’s what many interpret from the new financial reform bill. Besides generous monetary rewards, the new law also greatly expands whistle-blowers’ rights. Now, if you tell on your employer, you are allotted a whopping six years to bring your case to court, as opposed to a mere 90-day statute (the rule under Sarbanes-Oxley).

The National Whistleblowers Center was nice enough to compile everything pertaining to whistleblower protections from the Dodd-Frank Act. Also, our own Jared “Dubs” Wade blogged about the topic — and included a sweet example of his photoshop skills.

whistleblower

Toyota Settles Hybrid Patent Case

As we reported a few weeks ago, Toyota has been embroiled in a patent dispute with Paice LLC concerning its hybrid vehicle technology that threatened to halt hybrid imports in the United States.  As it turns out, after six years of litigation, Toyota has finally reached a settlement in the case. Terms of the settlement were not disclosed.

Paice founder Alex Severinsky, who had claimed that Toyota infringed on his 1994 patent, was pleased with the result.

“Finally people understand the merits of what I invented and give it the proper value,” Severinsky said.

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“Toyota is the leading technology company and finally appreciates the value of the invention.”

Toyota had insisted that, while its technology was similar to Paice patent, its hyrib vehicles were the result of its own independent research. Evidently, both parties were in agreement.

“The parties agree that, although certain Toyota vehicles have been found to be equivalent to a Paice patent, Toyota invented, designed and developed the Prius and Toyota’s hybrid technology independent of any inventions of Dr. Severinsky and Paice as part of Toyota’s long history of innovation,” both companies said in separate statements.

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With this issue out of the way, Toyota can now concentrate on its latest round of subpeonas. This time, a federal grand jury in New York is investigating whether or not Toyota notified the NHTSA in a timely fashion about faulty steering rods.

For Toyota, a bad year just keeps getting worse.

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Financial Reform and Regulatory Expansion

Whether you like it or not, the Dodd-Frank Wall Street Reform and Consumer Protection Act is now law. Passed by the Senate finally last week and signed by President Obama yesterday, financial reform will have wide-ranging implications for the financial services sector (including the insurance industry), the rest of corporate America and, really, just the whole country.

The most immediate effect will be the creation of new regulatory groups.

The National Law Review published a great breakdown. Here are the four more interesting additions.

Consumer Financial Protection Bureau
Will write consumer protection rules for banks and nonbank financial firms offering consumers financial services or products and ensure that consumers are protected from “unfair, deceptive, or abusive” acts or practices.

Federal Insurance Office
Will monitor all aspects of the insurance agency and identify issues or gaps in regulation that could lead to systemic risk.  Based upon its findings, the FIO will make recommendations to the FSOC regarding insurance institutions that pose a systemic risk and should be subject to greater regulatory oversight.

Financial Stability Oversight Council
Will identify risks and emerging threats to the financial stability of the United States arising from large bank holding companies and systemically important nonbank financial companies and respond with appropriate regulation to reduce the risk from their size and activities.

Office of Financial Research
Will have the power to subpoena financial information from institutions under the supervision of the Fed.  The OFR may require periodic and other reports from any nonbank financial company or bank holding companies.

The law also includes provisions surrounding “too big to fail,” the “Volker rule,” derivatives, hedge funds and “predatory” lending, but the regulatory changes are the most significant. And while it will be interesting to see how these new agencies take shape, the expanded mission of the SEC is the real story here.

I don’t think it’s a stretch to say that the SEC has been an abject failure since (at least) the turn of the millennium. I’m sure there was some good work done by the agency during this time, but if its core mission is to safeguard Americans from being duped by the unintelligible complexity masking the activity of Wall Street, the financial watchdog could not have performed more miserably. On its watch, complex, risk-laden transactions proliferated and — once the mirage of risk-free mortgage securities disappeared — ran the global economy head first into a brick wall. And this failure to check the financial institutions culpable was so great that, more than two years after Bear Stearns collapsed, nearly 10% of Americans still can’t find a job.

The Washington Post details the SEC’s expansion.

The SEC is required to issue 95 new regulations governing a wide swath of the financial sector, dozens more than the Federal Reserve, the new Consumer Financial Protection Bureau or other federal agencies. The SEC is also slated to complete 17 one-time studies and five new ongoing reports, according to a tally by the law firm Davis Polk & Wardwell.

The SEC will serve on the new Financial Stability Oversight Council, a new interagency body meant to spot emerging risks to the overall financial system. It will have to write rules to supervise the multibillion-dollar market of derivatives linked to stocks and bonds. It will begin examining the activities of hedge funds and private equity firms and tighten oversight of credit-rating agencies. And it will do studies of short selling and whether brokerage and investment firms must meet higher standards.

Perhaps only the Office of Thrift Supervision can compete with the SEC in terms of the new law’s impact. But in contrast to the SEC, which is gaining so many new responsibilities, OTS, which regulated home lenders, is being abolished.

Indeed, the SEC is coming out of the financial regulatory overhaul far stronger than many observers of the agency might have anticipated.

While in some ways it seems counterintuitive to task what some have perceived to be a failed agency with greater authority, I suppose some body has to do it. And change — for the better — is theoretically what reform is all about.

So … Enter a new stage of regulation, as John Lester and John Bovenzi succinctly point out.

Enactment of Dodd-Frank … marks only a new stage of financial reform, as the debate shifts to the rulemaking efforts of federal agencies. The complexity of the law and the many decisions delegated to regulators makes it difficult to predict which of the law’s many provisions will come to be the most significant. Ultimately, it will be regulators who determine the true impact of the law.

And that’s what has so many people scared — including business leaders who think regulators will be too draconian and SEC critics who think regulators will be too inept.

Distracted Driving on Company Time . . .

. . . A Risk Manager’s Worst Nightmare.

That was the title of the webinar I participated in yesterday, hosted by Risk and Insurance. Speaking on the topic were:

  • Dexter Hamilton, member and general/commercial litigator at Cozen O’Connor
  • Jami McClellan, senior risk engineering consultant at Zurich
  • Paul Bomberger, editor in chief of Risk and Insurance

Without wasting any time, the panel began discussion about various studies published in the recent past that highlight the dangers of distracted driving. Not only is it hazardous to those behind the wheel, but if the driver is talking on a work-issued phone, or about work-related issues, or driving a company-owned vehicle, the company stands liable.

According to webinar, there is no difference in distraction between hand-held and hands-free devices. In not-so-obvious news, distracted driving is one of the top insurance losses — averaging $100,000 per incident.

The panelists highlighted several cases of companies that were required to pay hefty sums for on-the-road accidents caused by their employees.

One such case involved a brokerage firm whose employee was driving his personal vehicle but talking about company business on his cell phone. The driver hit and severely injured a motorcyclist while talking on his phone. His employer was forced to pay $500,000 to settle the case.

“There’s simply going to be no sympathy once an accident happens,” said Hamilton. “And companies must realize that brand destruction is very critical. A high-profile accident can harm the brand everyone worked so hard to maintain and promote.”

For another example we can turn to the case of Tiburzi v Holmes, which involved Jeffrey Knight, who was a driver for Holmes Transport & Logistics, and Mark Tiburzi, who was driving his personal vehicle at the time. Knight caused an accident that injured 15 and killed three in St. Louis, Missouri. One of those injured was Tiburzi, who suffered severe traumatic brain injury. The cause of the accident? Along with excessive speed and driving over the alloted on-duty hours, distraction was blamed — Knight had looked away from the road to check his cell phone. The jury awarded Tiburzi $18 million — to be paid by Knight’s employer.

For more on this topic, check out “Unsafe at Any Speed” in Risk Management magazine.

distracted driving