With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) in July 2010, Congress established a whistleblower program that directs the SEC to pay a substantial award to eligible individuals who voluntarily provide original information to the SEC about potential federal securities law violations leading to a successful enforcement action that results in monetary sanctions exceeding $1 million. On May 25, 2011, the Securities and Exchange Commission (the SEC) published final rules (the Whistleblower Rules)1 to implement the whistleblower provisions of the Dodd-Frank Act. The adopted Whistleblower Rules provide for a potential award to the whistleblower of 10 to 30 percent of the total monetary sanctions collected, depending on a number of factors. The Whistleblower Rules become effective 60 days after they are submitted to Congress or published in the Federal Register.
The following is a brief overview of the key aspects of the Whistleblower Rules, broken down into two sections: (1) whistleblower award eligibility and (2) key provisions.
The new Whistleblower Rules provide for whistleblowers to qualify for monetary awards under specific circumstances.
Key provisions of the new Whistleblower Rules include:
The Whistleblower Rules include financial incentives for a whistleblower to bring his or her complaint directly to the SEC while completely bypassing the company’s internal compliance program. While the SEC has indicated it has built significant incentives into the new whistleblower award program to encourage whistleblowers to report internally in the right circumstances, the question remains whether the new provisions will effectively discourage internal reporting and risk undermining a company’s internal compliance program. In response, a company should encourage its employees to first report complaints directly to the company. This can be achieved through a comprehensive review of the company’s internal compliance program to ensure an effective program exists, training employees about the company’s compliance program and anti-retaliation policy, considering internal financial incentives for first reporting to the company, and convincing employees that all communications will remain confidential and without retaliatory action.
Copy of SEC Final Rules Regarding Implementation of the Whistleblower Provisions
A copy of the final SEC whistleblower rules is available on the SEC’s Web site.
1 See SEC Release No. 34-64545, Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934, available at: http://www.sec.gov/rules/final/2011/34-64545.pdf.
2 All quotes in this publication are from SEC Release No. 34-64545.
3 SEC Release No. 34-64545.
4 SEC Release No. 34-64545.
This article is provided for general informational purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. You are urged to consult a lawyer concerning any specific legal questions you may have.
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