On May 25, 2011, Securities and Exchange Commission (“SEC”) adopted final rules implementing the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The final rules, which take effect on August 12, 2011, are amongst some of the most debated and controversial rules to be promulgated in the wake of the financial crisis. Much of the controversy surrounding the proposed rules is the absence of any requirement that a whistleblower report initial findings through a company’s internal compliance program. Commentators have argued that the rules will serve to undermine existing compliance programs by providing large financial incentives for employees to bypass such programs to reap life changing rewards. Despite the objections of numerous commentators, the final rules do not require a whistleblower to report violations internally in order to qualify for an award. Rather, the final rules provide certain incentives for whistleblowers to utilize internal compliance programs instead of creating an internal reporting requirement. This corporate alert provides a summary of key provisions of the new whistleblower rules and discusses the potential impact on a company’s internal compliance program.
Section 922 of the Dodd-Frank Act requires the SEC to establish a new whistleblower program that will pay awards, subject to certain limitations and conditions, to whistleblowers that voluntarily provide the SEC with information about violations of securities laws that lead to a successful enforcement action resulting in monetary sanctions exceeding $1 million. By statute, whistleblowers are entitled to receive anywhere between 10% to 30% of total monetary sanctions recovered. Section 922 of the Dodd-Frank Act, also provides protection to whistleblowers by prohibiting retaliation by employers against individuals who provide information regarding potential securities violations to the SEC.
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