SEC’s Proposed Whistleblower Rules Will Eviscerate Compliance Programs


Last month, I wrote about California’s whistleblower hotline in this post. In early November, the Securities and Exchange Commission issued proposed rules for implementing the whistleblower provisions of Section 21F of the Securities Exchange Act of 1934, which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 21F requires, subject to various conditions, that the SEC pay a bounty to whistleblowers who voluntarily provide the SEC with original information about a violation of the federal securities laws that leads to the successful enforcement of a covered judicial or administrative action, or a related action. The act’s legislative history states that the SEC has “discretion in determining the amount and whether or not a whistleblower is eligible to be awarded.” S. Rep. No. 111-176, at 112 (2010) (Conf. Rep.)

The comment period for the SEC’s proposed rules ended last week. As I stated in my comment letter, the rules should exclude anyone who fails to comply with an issuer’s whistleblower complaint procedures. Failure to exclude people who bypass internal complaint procedures will necessarily undermine compliance. Rather than reporting allegations to issuers so that issuers can investigate and remediate problems, whistleblowers will have a significant incentive to play the SEC’s “bounty lottery”. The key to any efficient regulatory scheme is to encourage voluntary compliance. Without an exclusion for opportunists who bypass compliance programs, the bounty program will significantly undermine those programs.

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen Matkins | Attorney Advertising

Written by:


Allen Matkins on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.