On May 25, 2011, the Securities and Exchange Commission (“SEC”) adopted rules to implement the whistleblower program called for under the Dodd- Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).1 The rules, which became effective on August 12, 2011, are likely to impact thousands of companies throughout the United States. This article discusses who is eligible for a whistleblower award; incentives for whistleblowers to report to the SEC; liability issues for companies accused of retaliation; and the special impact the rules may have on broker-dealers and the financial services firms that own them. We conclude by providing ideas for developing “smart” compliance programs, i.e., compliance programs designed for employers and employees.
Award Eligibility and Incentives
By way of background, the fi rst thing to note about Dodd-Frank’s whistleblower provisions and the SEC’s rules implementing those provisions is their goal: the legislation and the SEC’s rules are designed to motivate employees of companies that must comply with the securities laws to tip the SEC regarding possible securities laws violations by their employers. The incentives take two forms: monetary awards and job protection. Dodd-Frank authorizes the SEC to pay whistleblowers an award of not less than 10 percent and no more than 30 percent of all collected monetary sanctions resulting from an SEC enforcement action.2 In addition to this financial incentive, would-be whistleblowers can tip without fear of impact to their job status because Dodd-Frank gives employees a private right of action against their employers for any suspected retaliation. Thus, the stage is set for increased reporting by employees to the SEC, and a need for employers to proactively manage the issues created by this reporting.
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