SEC Adopts Final Rules Implementing the Dodd-Frank Whistleblower Program

Publicly traded employers should be aware that the U.S. Securities and Exchange Commission (“SEC”) recently adopted Final Rules implementing the whistleblower program under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). Consistent with the Final Rules, which become effective on August 12, 2011, employers should not interfere with an employee’s efforts to communicate with the SEC or take any adverse actions against an employee for exercising his or her rights under the whistleblower program. In addition, employers should have clear policies in place for employees to be able to report any perceived violations of federal securities laws and employees should be trained on the procedures for reporting any such violations. The Act creates a private right of action for whistleblowers who have suffered retaliation and remedies include reinstatement, double back pay with interest, litigation costs, expert witness fees, and reasonable attorney’s fees.

The Dodd-Frank whistleblower program provides an incentive for individuals to report alleged violations of the securities laws to the SEC by providing a monetary reward in the event of a successful enforcement action. In order to be considered for an award, a whistleblower must voluntarily provide original information to the SEC that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million. Final Rules at 245.

Employers should take particular note of the following provisions:

  • A whistleblower who provides information to the SEC is protected from employment retaliation if he or she had a reasonable belief that the information being provided relates to a possible securities law violation that has occurred, is ongoing, or is about to occur. A whistleblower is protected even if he or she does not recover a whistleblower award. Final Rules at 244.
  • It is unlawful for anyone to interfere with a whistleblower’s efforts to communicate with the SEC. This also includes threatening to enforce a confidentiality agreement to interfere with disclosure to the SEC. Final Rules at 277-78.
  • The Final Rules exclude certain categories of personnel “with established professional obligations” to report compliance violations. The SEC Fact Sheet summarizes the categories of exempted individuals.
  • If a whistleblower provides information to an entity’s internal whistleblower, legal, or compliance department and within 120 days submits the same information to the SEC, the SEC will consider the information to have been provided to the SEC as of the date of the original submission to the entity for purposes of considering an award. Final Rules at 252-53.
  • The SEC will decide the amount of the award. The amount of the award will be between 10 percent and 30 percent of the monetary sanctions that the SEC and other authorities are able to collect. Final Rules at 254-55.
  • In determining the amount of the award, the SEC may consider the following: (1) the significance of the information; (2) the assistance provided by the whistleblower; (3) law enforcement interest; and (4) participation in internal compliance systems. Final Rules at 255-58. Factors that would decrease the amount of the award include the following: (1) culpability of the whistleblower in matters associated with the SEC’s actions or related actions; (2) unreasonable delay in reporting; and (3) interference with internal compliance and reporting systems. Final Rules at 258-60.
  • Foreign officials are precluded from receiving whistleblower awards. Final Rules at 262.

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