The SEC recently proposed rules to establish a whistleblower program pursuant to authority granted under the Dodd-Frank Wall Street Reform and Consumer Protection Act. This whistleblower program is intended to reward individuals who act early to expose violations by providing the SEC with significant evidence that contributes to successful enforcement actions. The period for public comment on the proposed rules ends on December 17, 2010.
A whistleblower is a person who provides information to the SEC relating to a potential violation of the securities laws. To be considered for an award, a whistleblower must voluntarily provide the SEC with original information that significantly contributes to a successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million. The proposed rules provide for an award of at least 10% and no more than 30% of the total monetary sanctions collected depending on an evaluation of certain criteria and the particular facts and circumstances. In order to not discourage whistleblowers that work for companies with robust compliance programs from first reporting a potential violation to appropriate company personnel, the proposed rules would preserve a whistleblower’s status as an original source of the information and eligibility for an award.
Under the proposed rules, the whistleblower program would exclude certain persons with established professional obligations that play a critical role in achieving compliance with federal securities laws, such as attorneys, independent auditors and internal company compliance personnel. Further, to maximize high-quality information, the proposed rules include a requirement that the information be submitted under penalty of perjury, and require an anonymous whistleblower to be represented by counsel who must certify to the SEC that such counsel has verified the identity of the anonymous whistleblower.