The SEC has seen a sharp increase in the number and quality of tips it has received since the enactment of the Dodd-Frank Act (DFA). DFA provides that the SEC must pay a bounty to whistleblowers who provide it with original information that leads to an enforcement action resulting in sanctions of $1 million or more. The SEC is required to award such whistleblowers an amount between 10 and 30 percent of the sanctions collected.
Apart from the fact that employees may forgo internal channels and provide information directly to the SEC hoping to receive an award, one of the most significant but less obvious effects will be the increased risk of “gatekeeper,” or aider and abettor liability. “Gatekeepers” are the professionals, including in-house and outside counsel, who may have rendered advice or services in connection with violative conduct. As discussed in Bar Lowered for SEC to Charge Aiding and Abetting, on page 14, DFA reduced to mere recklessness the scienter requirement for the SEC to bring aiding and abetting charges.
With the potentially lucrative bounties and the new lower standard required for aiding and abetting, counsel and other gatekeepers now have considerably more exposure to enforcement actions.