On May 25, 2011, the United States Securities and Exchange Commission ("SEC") adopted final rules implementing the new "Securities Whistleblower Incentives and Protection" provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"). The new provisions of the Dodd-Frank Act direct the SEC to pay awards, under certain conditions, to whistleblowers who voluntarily provide the SEC with significant information leading to successful SEC enforcement actions. Specifically, to be considered for an award, a whistleblower must voluntarily provide the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million.
Although the final rules contain several revisions to the proposed rules issued on November 3, 2010, a number of the incentives energizing the plaintiff's bar remain. For example, the final rules encourage - but still do not require - that a whistleblower report possible violations of federal securities laws internally before contacting the SEC directly. In addition, even though the final rules extend the time period in which a whistleblower may report a possible violation to the SEC after utilizing an internal complaint procedure from 90 to 120 days, the modest increase continues to place significant pressure on an employer's ability to conduct an effective internal investigation. The final rules also exclude certain individuals from consideration for an award, add a “reasonable belief” requirement to the anti-retaliation protections, and modify the definition of "whistleblower" - by requiring that a whistleblower provide information about a "possible violation . . . that has occurred, is ongoing, or is about to occur." The final rules will be effective 60 days after they are submitted to Congress or published in the Federal Register.