On May 25, 2011, the SEC adopted final rules implementing the new whistleblower provisions of Section 922 of the Dodd-Frank Act. New Regulation 21F provides that if a whistleblower has provided information relating to the violation of federal security laws resulting in penalties or recoveries by the SEC, then that whistleblower is eligible to receive 10 to 30 percent of the total monetary sanctions collected.
To be considered for a monetary award, the final rules require the following:
(1) The whistleblower must give the information to the SEC voluntarily and before the government, a self-regulatory organization, or the Public Company Accounting Oversight Board requests it directly;
(2) The information must be original, meaning the whistleblower must obtain the information independently, and the information must not be publicly available or already known by the SEC;
(3) The information must lead to successful enforcement by the SEC of a federal court or administrative action. This requirement is satisfied if:
(a) a new investigation is opened, a closed investigation is reopened, or a new line of inquiry is discovered in an existing investigation on account of the information;
(b) the information significantly contributes to the success of an on-going action; or
(c) the whistleblower reports original information through his or her employer’s internal whistleblower, legal, or compliance procedures before or at the same time it is transmitted to the SEC, the employer provides the whistleblower’s information (and any subsequently-discovered information) to the SEC, and the information leads to a successful enforcement action as stated in (a) and (b) above; and
(4) The SEC obtains monetary sanctions totaling more than $1 million. The
rules permit aggregation of multiple SEC cases arising out of a common nucleus
of operative facts to reach the dollar threshold.
The following people
generally are not eligible for whistleblower awards:
- Those who have a pre-existing legal or contractual duty to report their information to the SEC.
- Attorneys (including in-house counsel) who obtain the information from a client in order to make whistleblower claims for themselves.
- Those who obtain the information illegally.
- Foreign government officials.
- Officers, directors, trustees or partners of an entity who are informed or learn the information in connection with the entity’s internal process for identifying possible violations.
- Compliance and internal audit personnel, and public accountants working on SEC engagements if the information relates to violations by the engagement client. An exception exists, however, for these individuals if they reasonably believe that (i) the disclosure may prevent substantial injury to the financial interest or property of the entity or investors, (ii) the entity is engaging in conduct that will impede investigation, or (iii) at least 120 days have passed since the whistleblower reported the information to a supervisor or internal audit committee.
Notably, the final rules prohibit retaliation by employers against
whistleblowers who provide the SEC information about possible securities
violations. The final rules also make it unlawful for anyone to interfere with a
whistleblower’s efforts to communicate with the SEC, including threatening to
enforce a confidentiality agreement.
If you have any questions or
concerns regarding SEC whistleblower rules or any other corporate compliance
matter, please contact Daniel Nunn in the Jacksonville office (904) 598-3100, Olga Pina in the Tampa office (813) 228-7411, or Arnold Zipper in the Fort Lauderdale office (954) 703-3900 of
Fowler White Boggs PA.
