SEC Proposes Rules To Implement Dodd-Frank Whistleblower Program

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Earlier this month, the Securities and Exchange Commission proposed rules to implement the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the proposals, whistleblowers would be encouraged to report potential federal securities law violations directly to the SEC in exchange for the prospect of substantial financial rewards. Specifically, new Section 21F under the Securities Exchange Act of 1934 (i) requires the SEC to pay whistleblowers who provide original information that leads to a successful government enforcement action rewards of between 10 and 30 percent of monetary sanctions that aggregate at least $1,000,000 and (ii) prohibits retaliation by employers against individuals who provide the SEC with information about potential securities violations.

The proposed rules seek to strike a balance between encouraging whistleblowers to voluntarily come forward with information related to potential federal securities law violations and addressing a number of competing concerns, in particular the risk that the whistleblower rewards will undercut the effectiveness of companies’ existing internal processes for investigating and reporting potential securities law violations. The SEC is soliciting comments on the proposed rules through December 17, 2010 and is required to adopt final rules implementing the whistleblower program no later than April 21, 2011.

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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.

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