SEC Adopts Rules Establishing Whistleblower Program Under Dodd-Frank Act

WASHINGTON, D.C. - (Mealey's) The Securities and Exchange Commission on May 25 adopted 17 new rules providing for whistleblower incentives and protection under the Securities Exchange Act of 1934, bringing it in compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The new whistleblower program, which was adopted under Section 922 of the Dodd-Frank Act, requires the SEC to "pay an award, under regulations prescribed by the Commission and subject to certain limitations, to eligible whistleblowers who voluntarily provide the Commission with original information about a violation of the federal securities laws that leads to the successful enforcement of a covered judicial or administrative action, or a related action." 

"Dodd-Frank also prohibits retaliation by employers against individuals who provide the Commission with information about possible securities violations," the SEC said in the summary of the rules. 

The rules, which are implemented under Section 21F of the Exchange Act, contain a number of revisions from the SEC's initially proposed Regulation 21F of Section 21F, including revisions regarding internal compliance, procedures for submitting information and claims, aggregation of smaller action to meet the $1 million threshold and certain exclusions from award eligibility for certain persons and information. 

In particular, the rules do not require whistleblowers to "report violations internally, but we have made additional changes to the rules to further incentivize whistleblowers to utilize their companies' internal compliance and reporting systems when appropriate." 

The rules also set forth a more streamlined process for whistleblowers to submit information, "combining the two proposed forms into a single form TCR that would be submitted by a whistleblower under penalty of perjury." 

"With respect to the claims application process, we have made one section of that form optional to make the form less burdensome," the SEC explained. 

Moreover, in the final rules, "for the purposes of making an award, we will aggregate two or more smaller actions that arise from the same nucleus of operative facts," the SEC stated, adding that "[t]his will make whistleblower awards available in more cases." 

The rules further "provide greater clarity and specificity about the scope of the exclusions [from eligibility for certain categories of persons and information] applicable to senior officials within an entity who learn information about misconduct in connection with the entity's processes for identifying, reporting, and addressing possible violations of law." 

The new whistleblower rules will become effective 60 days from publication in the Federal Register. 

[Editor's Note:  Full coverage will be in the June issue of Mealey's Emerging Securities Litigation.  In the meantime, the rules are available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #57-110613-006X.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

 For more information, call editor Timothy J. Raub at 215-988-7740, or email him at timothy.raub@lexisnexis.com.

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