One member of the Securities and Exchange Commission said the newly adopted whistle-blower program would undermine a financial institution’s ability to catch violations at an early stage. SEC Commissioner Kathleen Casey, who was appointed by President George W. Bush in July 2006, expressed her concern in a meeting this week with the other commissioners and SEC Chairman Mary Schapiro. “An inherent risk of the approach adopted in the final rule, is that the monetary sums at stake will provide a significant enough incentive for whistleblowers to completely bypass internal reporting in favor of coming straight to the Commission,” Casey said. “Diverting a large portion of that flow of information to the government will impair companies’ ability to step in and interrupt violations at an early stage.” The new program passed the commission on a 3-2 vote this week. Established under the Dodd-Frank Act, the program will “reward individuals who act early to expose violations and who provide significant evidence that helps the SEC bring successful cases.” But Michael Grimm (R-N.Y.) introduced a bill earlier in May amending Dodd-Frank and requiring the employee to report to his or her employer with the information before going to the SEC. If the whistle blower doesn’t, no reward will be given, according to the bill. Casey said undermining these internal controls does not benefit investors. She warned the volume of these complaints will surely grow and make the job more difficult for the SEC division of enforcement. Shapiro favors the new whistle-blower rule and said tips the SEC received since the Dodd-Frank became law are more substantive. And she expects the trend to continue. Casey added the program provides incentives to attorneys to step forward and violate attorney-client privileges. While the program exclude information obtained from such communications, an attorney can come forward if he or she “has a reasonable basis to believe that disclosure of the privileged information is necessary to prevent substantial injury to the financial interest or property of investors,” Casey said. She added that many securities law violations could be considered a threat of financial injury to investors. Casey said be allowing attorneys to come forward under the exception would undermine duties of trust and confidence that must given to their clients. “While I appreciate that today’s release seeks to provide additional incentives for whistleblowers to use internal reporting channels, I remain deeply concerned that they are not sufficient to preserve the value of internal compliance programs and their contribution to our enforcement efforts,” Casey said. Write to Jon Prior. Follow him on Twitter @JonAPrior.