Yesterday, the SEC issued two rules in order to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The rules affect the payment of bounties for revealing insider trading violations and requirements relating to audits of internal control over financial reporting.
First, the SEC rescinded rules which authorized the payment of bounties for providing information leading to the recovery of civil penalties for insider trading violations, which were previously authorized by the Insider Trading and Securities Fraud Enforcement Act of 1988. In its place, the Dodd-Frank Act established a broader program for monetarily awarding whistleblowers. The new program authorizes the SEC to award persons who provide “original information” that leads to the successful enforcement of certain judicial or administrative actions. Potential awards range from 10% to 30% of collected monetary sanctions. Unlike the former insider trading bounty program which authorized awards only for violations of insider trading laws, the new program authorizes awards for the violation of any federal securities law.
The SEC additionally amended certain rules to conform to the new Section 404(c) of the Sarbanes Oxley Act of 2002 (Sarbanes-Oxley), added by the Dodd-Frank Act, which exempts non-accelerated filers from having to include in their annual reports an independent auditor’s attestation report on internal control over financial reporting. Accordingly, the SEC amended Item 308 of Regulation S-K to require filers to include in their annual reports the disclosure regarding this attestation report only if such an attestation report is actually included in the annual report. Rule 2-02(f) of Regulation S-X similarly clarifies that audit reports need not include an assessment of a non-accelerated filer’s internal control over financial reporting.
The Dodd-Frank Act does not, however, relieve any filer from Section 404(a) of Sarbanes-Oxley, which requires annual reports to include management’s report on internal control over financial reporting.