King & Spalding’s Public Company Practice Group periodically publishes the Public Company Advisor to provide practical insights into current corporate governance, securities compliance and other topics of interest to public company counsel.

Whistleblower Bounty Program: Corporate Compliance Program Considerations

Overview

Whistleblower rules adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) have established an award program that incentivizes whistleblowers to report possible violations of all federal securities laws, rules, and regulations to the U.S. Securities and Exchange Commission (“SEC”). The SEC recently reported to Congress that during the first seven weeks of the program’s operation, it received 334 whistleblower tips, which most commonly focused on market manipulation, corporate disclosures and financial statements, and offering fraud. While the Dodd-Frank whistleblower rules do not specifically require companies to implement new compliance measures, the SEC’s report to Congress serves as a reminder that companies may wish to revisit their compliance programs in light of the considerations discussed below.

Summary of Whistleblower Bounty Program

Dodd-Frank required the SEC to establish a whistleblower award program and provide monetary awards to persons who voluntarily report original information to the SEC regarding possible violations of any federal securities laws if that information leads to a successful action resulting in at least $1 million in sanctions. The SEC’s final rules for this “bounty” program took effect on August 12, 2011...

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