Blowing Your Own Whistle: Trumpeting Your Whistleblower Policies in Response to the SEC's New Whistleblower Program

Blowing Your Own Whistle: Trumpeting Your Whistleblower Policies in Response to the SEC's New Whistleblower Program

by Cynthia Krus

The U.S. Securities and Exchange Commission ("SEC") has issued final rules (the "Rules") implementing the whistleblower incentive program (the "Program") pursuant to Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), which added Section 21F to the Securities Exchange Act of 1934 (the "Exchange Act").

The Program is designed to encourage individuals to voluntarily report possible securities law violations to the SEC by offering cash rewards of between 10% and 30% of monetary sanctions exceeding $1 million. It also builds upon the Sarbanes-Oxley Act of 2002 ("SOX") and provides additional protections to whistleblowers. Dodd-Frank broadens SOX's anti-retaliation provisions by protecting tipsters of any company subject to the securities laws rather than simply employees of publicly-traded companies, permitting direct causes of action in lieu of administrative hearings, doubling the statute of limitations and increasing possible damages awards.

Many different types of companies are subject to the federal securities laws and must be aware of the Program and its potential effects. Any company subject to the SEC's jurisdiction may want to consider revisiting its internal reporting and compliance policies and procedures in response to the Program.

Whistleblower Rewards

The Program creates the SEC whistleblower office to collect tips and make awards to eligible whistleblowers. Whistleblower awards will be paid out of the statutorily-created Investor Protection Fund, which currently has a balance of more than $450 million.

A "whistleblower" is an individual that, alone or jointly with others, provides information relating to possible securities law violations that have occurred, are ongoing, or are about to occur. Whistleblowers may receive cash rewards of between 10% and 30% of monetary sanctions for (1) voluntarily providing (2) original information to the SEC (3) which leads to a successful action (4) resulting in monetary sanctions exceeding $1 million. In the interest of supporting internal compliance programs and protecting certain proprietary information, however, the Program excludes certain individuals from reward eligibility, including, among others, accountants, lawyers, compliance personnel and those who obtain information illegally.

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