On May 25, 2011, the SEC adopted final rules implementing the new whistleblower program that was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final rules go into effect on August 12, 2011.
The whistleblower program is intended to encourage individuals to report securities law violations by paying to the whistleblower an award of between 10% and 30% of the monetary sanctions collected by the SEC or certain other agencies.
The whistleblower must be an individual or a group of individuals who provide the SEC with information that pertains to a possible violation of federal securities law. A whistleblower must voluntarily disclose information. This information must be “original” information, and it must not have already been known by the SEC. The information must lead to a successful enforcement action(s). The enforcement action(s) by the SEC or certain other agencies must result in a monetary sanction in excess of $1,000,000. Some of these rules are complex and may require a detailed analysis by the whistleblower or his attorney.
The law provides certain anti-retaliatory provisions that protect the whistleblower and give the whistleblower the right to bring a private cause of action if retaliation occurs.
The rules permit a whistleblower to bypass the company’s internal reporting obligations and report possible violations directly to the SEC. Most companies would prefer a whistleblower to report possible violations to appropriate company management. A whistleblower may still receive an award if he reports the possible violations to company management. In order to encourage a whistleblower to report possible violations to the company, and not to the SEC, top company management must establish policies and procedures that make the whistleblower believe that reports will be quickly and effectively addressed and that no retaliation will occur.
