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News October 17, 2011 Issue

The Whistleblower Conundrum

The code of ethics rule and the whistleblower rule are currently at odds with each other.

Rule 204A-1 requires a firm to maintain a code of ethics that, at a minimum, includes "provisions requiring supervised persons to report any violations of your code of ethics promptly to your chief compliance officer…." However, the new whistleblower statute and rule allow persons to bypass internal compliance functions and go straight to the SEC to report violations.

Is it the CCO’s problem, the whistleblower’s problem, or both?

Pickard & Djinis partner Mari-Anne Pisarri observed the issue to an audience at the Investment Adviser Association Fall Compliance Workshop on October 11, and the fact that, at least for the time being, no solution is readily apparent.

"I don’t think anybody thought of this," she said.