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.
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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