SEC Finalizes Whistleblower Rules

June 02, 2011

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The United States Securities and Exchange Commission (“SEC”) has finalized the whistleblower rules that were required by Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the new rules, whistleblowers are eligible for a reward if they provide the SEC with original information about a securities law violation that leads to a successful enforcement action.  To help the SEC identify credible tips, potential whistleblowers must identify themselves as seeking a reward and provide a sworn statement that the information they provided is true.  If the SEC collects more than $1 million based upon the information provided by the whistleblower, then the whistleblower may receive between 10 to 30 percent of the total amount collected.

In November 2010, the SEC first proposed whistleblower rules and asked for comments.  The SEC received 240 comments and more than 1300 form letters.  Based on this feedback, the final rules included several changes from the original rules.  One of these changes gives whistleblowers a potential bonus if they first report the wrongdoing to their company’s internal compliance department.  The final rule also further defines who is ineligible for a reward.  Those involved in the wrongdoing, lawyers who gain the information from clients, foreign government officials, and internal audit employees are all ineligible to receive a reward.  However, compliance and internal audit workers or public accountants could be eligible to receive a reward as an informant if they observe that a company has not acted on reported wrongdoings and they believe that the company is obstructing an investigation.  To view the complete version of the rule, click here.

Posted by Bryan Hill
Labels: Uncategorized