On November 3, 2010, the SEC proposed rules to implement the whistleblower provisions of the Dodd-Frank Act. Proposed Regulation 21F under the Exchange Act would expand the SEC’s ability to reward whistleblowers who alert the SEC to federal securities law violations. Among other things, proposed Regulation 21F would require the SEC to pay awards of between 10% and 30% of the monetary sanctions that the SEC and other authorities are able to collect to whistleblowers who voluntarily provide the SEC with original information about a violation of federal securities laws that leads to a successful enforcement action with monetary sanctions exceeding $1 million.
Under proposed Regulation 21F, only a natural person, either alone or jointly with others, is eligible to be a whistleblower. Proposed Regulation 21F generally allows for whistleblower anonymity and otherwise provides that the SEC will not reveal a whistleblower’s identity, except under certain circumstances. However, anonymous whistleblowers must be represented by an attorney who is required to provide certification as to the whistleblower’s identity and the completeness and accuracy of the whistleblower’s submission. In order to receive an award as a whistleblower, the following requirements apply:
- the whistleblower must voluntarily provide the SEC with the information,
- the whistleblower must provide original information based on their independent knowledge or analysis, and
- the whistleblower’s information must lead to successful enforcement by the SEC of an injunctive action in federal court or an administrative proceeding, which could be satisfied: (1) if the information results in a new examination or investigation being opened and significantly contributes to the success of a resulting enforcement action, or (2) if the conduct was already under investigation when the information was submitted, but the information is essential to the success of the action and would not have otherwise been obtained.
Under the proposal, whistleblowers are not required to report potential securities law violations through a company’s internal reporting system before submission to the SEC. However, proposed Regulation 21F would not disqualify an individual who reports a potential securities law violation internally prior to submitting such information to the SEC, provided that the individual provides such information to the SEC within 90 days of the internal reporting.
Proposed Regulation 21F provides that culpable whistleblowers may not recover awards and are not given amnesty. Additionally, individuals whose job descriptions require them to investigate and uncover corporate wrongdoing generally may not receive an award.
Comments on the proposal are due by December 17, 2010.