The SEC has proposed new Regulation 21F under the Exchange Act to implement the Dodd-Frank Act directions to provide monetary incentives for whistleblowers. The proposal would apply to voluntary, original information about any securities violation by a private or public company in which the monetary sanctions exceed $1 million. Compliance personnel may become eligible whistleblowers and anti-retaliation provisions would not be dependent on an ultimate finding that the conduct reported constituted a violation or whether the whistleblower satisfied all of the rule’s requirements.
Under proposed Section 21F, eligible whistleblowers who voluntarily provide the SEC with original information about a violation of federal securities laws that leads to a successful civil or administrative action could be awarded up to 30 percent of the SEC’s monetary sanctions. Eligible whistleblowers are broadly defined and exclude only certain people with an existing legal or contractual duty to report the information, such as lawyers, auditors and internal compliance personnel, and people criminally convicted in connection with the misconduct. Compliance personnel can become eligible whistleblowers if, after disclosing a potential violation, the company acts in bad faith or fails to disclose the information to the SEC within a reasonable period of time. The proposal defines a “whistleblower” as “an individual who, alone or jointly with others, provides information to the [SEC] relating to a potential violation of the securities laws.”
The Dodd-Frank Act also prohibits retaliation by employers against individuals providing the SEC with information about potential securities violations. Under the proposed rule, the anti-retaliation provisions would not be dependent on an ultimate finding that the conduct reported constituted a violation of securities laws or on whether the whistleblower satisfied all of the proposed rule’s requirements and qualifies for a reward.
The SEC is requesting comments by December 17, 2010, on the proposed rule including the proposed definition of “whistleblower,” the circumstances when a whistleblower should be considered to have acted “voluntarily,” and other categories of persons who should not be considered for whistleblower awards.
The proposed rule is available online at http://www.sec.gov/rules/ proposed/2010/34-63237.pdf.