Washington Editor

Employees could be blowing their whistles earlier and a lot more often under the final rules passed by the SEC Wednesday.

The rules, which are expected to become effective by mid- to late July, are "intended to reward individuals who act early to expose violations and who provide significant evidence that helps the SEC bring successful cases," the commission said.

To be eligible for awards, whistle-blowers must voluntarily provide original information, based on their independent knowledge or analysis, that leads to a federal court or administrative action in which the SEC obtains sanctions totaling more than $1 million.

Whereas the proposed rules released last year only allowed awards for a single action that produced the hefty sanction, the final rules permit awards when an aggregation of cases stemming from a common set of facts adds up to more than $1 million.

"This will make whistleblower awards available in more cases," the SEC said in the rules.

While the commission encourages employees to use their companies' internal compliance programs, the new rules stop short of requiring an initial internal toot. Instead, they offer the following incentives for reporting SEC violations in house:

whistle-blowers will be eligible for an award if they report a violation internally and the company then reports it to the SEC;

employees will be treated as whistle-blowers as of the date they report the information internally – as long as they provide the same information to the SEC within 120 days;

whistle-blowers' voluntary participation in internal compliance and reporting systems can increase the amount of their award. But the award can be decreased if they interfere with internal compliance and reporting.

The incentives stemmed from hundreds of comments the SEC received in response to the proposed rules released last year.

The commission specifically asked for input on how its whistle-blowing program should interact with companies' internal programs.

Reuben Guttman, who chairs the whistle-blower practice at Grant & Eisenhofer, sees the incentives – rather than a requirement to report internally – as a win for shareholders, consumers and taxpayers.

"In this regard, the SEC rule marks a conservative approach, given that a few short months ago we were on the verge of an economic meltdown attributable to pervasive wrongful conduct that was unchecked by failed internal compliance programs," he said.

Guttman represented one of the whistle-blowers in the $2.3 billion settlement with Pfizer Inc. over the illegal marketing of the drug Bextra. The whistle-blowers in that case shared $102 million. (See BioWorld Today, Sept. 8, 2009.)

SEC Chairman Mary Schapiro said the new rules simplify the procedures for blowing the whistle and make the process more transparent.

"For an agency with limited resources like the SEC, it is critical to be able to leverage the resources of people who may have first-hand information about violations of the securities laws," Schapiro said.

Biotech Tax Credit Part Deux?

The popularity of last year's Therapeutic Discovery Project tax credit has the biotech industry and some members of Congress pushing for a repeat performance.

U.S. Reps. Susan Davis (D-Calif.) and Allyson Schwartz (D-Pa.) Wednesday introduced the Qualifying Therapeutic Discovery Project Tax Credit Extension Act, H.R. 1988, to extend the tax credit through fiscal 2017.

Building off the success of the 2010 credit, which provided $1 billion in support to nearly 3,000 companies, the new bill would provide $1 billion in tax credits and grants per fiscal year to small U.S. biotechs that show significant growth potential in new and cost-saving therapies, Biotechnology Industry Organization President and CEO Jim Greenwood said.

The credit or grant would cover up to half of the cost of qualifying biomedical research, up to a maximum credit of $5 million per company. Biotechs with no more than 250 employees would be eligible.

So as not to add to the federal deficit, the bill directs the Office of Management and Budget to cut duplicate spending to offset the loss in revenues.

"The bill provides much-needed support for biotechnology companies working on breakthrough therapies," Greenwood said.

The extension would help companies "sustain or create high-quality jobs by providing capital assistance that supports their work and their work force," he added.

More than 5,600 projects were submitted to the Internal Revenue Service for the grants or credits last year. (See BioWorld Today, Nov. 4, 2010.)