Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act states that where a whistleblower provides “original information” to the SEC that leads to an enforcement action in which the SEC obtains a monetary sanction totaling at least $1 million, the SEC “shall pay an award” to the whistleblower of between 10 and 30 percent of the monetary sanctions imposed in the SEC enforcement action and certain related actions.  The whistleblower bounty provision has started to affect the hedge fund industry.  On July 23, 2010, two days after passage of Dodd-Frank, the SEC paid $1 million to whistleblowers that provided documents that assisted the SEC in its insider trading case against the principal and a former employee of Pequot Capital Management.  See “The SEC’s New Focus on Insider Trading by Hedge Funds,” Hedge Fund Law Report, Vol. 3, No. 22 (Jun. 3, 2010); “Hedge Funds in the Crosshairs: The Law of Insider Trading in an Active Enforcement Environment,” Hedge Fund Law Report, Vol. 3, No. 7 (Feb. 17, 2010).  And earlier this month, an anonymous whistleblower complaint relating to valuation of portfolio assets by Plainfield Asset Management reportedly was filed with the SEC.  For more on Plainfield, see “Hedge Fund Managers Using Special Purpose Vehicles to Minimize Adverse Effects of Redemptions on Long-Term Investors,” Hedge Fund Law Report, Vol. 2, No. 15 (Apr. 16, 2009).  However, the real impact of the whistleblower bounty provision on the hedge fund industry remains to be seen.  The Pequot payment was for assistance provided pre-Dodd-Frank, and presumably was made in part to demonstrate that the SEC will actually cough up some money for whistleblowers – in the interest of causing more whistleblowers to come forward.  And the Plainfield whistleblower complaint may or may not lead to a successful enforcement action and payment to the whistleblower.  Hedge fund managers have started setting up whistleblower hotlines to enable employees and service providers to anonymously report wrongdoing.  The intent of such hotlines is to enable management to identify and promptly address wrongdoing, ideally before it ripens into a legal or regulatory violation.  See “Can Hedge Fund Managers Use Whistleblower Hotlines to Help Create and Demonstrate a Culture of Compliance?,” Hedge Fund Law Report, Vol. 3, No. 29 (Jul. 23, 2010).  However, the use by hedge fund managers of whistleblower hotlines is in its infancy, and there are essentially two views on how the whistleblower bounty provision of Dodd-Frank will impact the use of such hotlines going forward.  One view holds that the considerable bounties theoretically available to whistleblowers that provide “original information” to the SEC will diminish the use by employees of hedge fund managers and service providers of internal whistleblower hotlines established by the hedge fund manager.  Why give whistleblower information away for free, this line of reasoning goes, when you can sell it for a considerable amount?  The other view holds that the whistleblower bounty program is one of various ways in which Dodd-Frank strengthens the SEC’s investigation, data-collection and enforcement powers, and that in recognition of this newly empowered SEC, hedge fund managers will, on their own, redouble their compliance efforts.  In other words, under the first view, there is a fixed supply of bad acts and whistleblowers, as rational actors, will report those bad acts to the highest bidder; under the second view, the mere existence of the whistleblower bounty program will change behavior at hedge fund managers – will frighten managers into increased compliance.  The first view is classical economics, the second view, behavioral economics.  We want to hear from you on which view you find more plausible.  Specifically, we want to hear your thoughts on the following questions: (1) Do you think the Dodd-Frank whistleblower bounty provision will increase or decrease the use by hedge fund management company and service provider personnel of internal whistleblower hotlines (where hedge fund managers have such hotlines)?  (2) What incentives can hedge fund managers offer to employees to cause them to report wrongdoing through internal channels rather than to the SEC?  (3) Do you think hedge fund managers should have employee whistleblower hotlines, and if so, why?  Please send your thoughts on these questions to Mike Pereira, Publisher of the Hedge Fund Law Report, at: mpereira@hflawreport.com.  If we receive a critical mass of responses, we will publish those responses in edited version.  (Even if we do not receive a critical mass of responses, we will continue to explore this topic and will report on it as appropriate.)  We will not disclose your name or affiliation unless you affirmatively ask us to.  Thank you in advance for your thoughts.