SEC Adopts Final Regulations for Whistleblower Program

With great anticipation, the SEC adopted its final regulations governing the new whistleblower program under the Dodd-Frank financial reform legislation.  Most significantly, the SEC did away with a proposed requirement that whistleblowers first report wrongdoing internally before reporting to the SEC, despite strong opposition from corporate lobbyists.  The SEC did provide enhanced remedies for whistleblowers that decide to first report internally by reaffirming that such whistleblowers will still be eligible for an award, and by giving the whistleblower 120 days to report to the SEC if the company doesn’t do so.  The employee would receive whistleblower status from the date of internal reporting so as to maintain their place in line in case of successive reporting of the same conduct.  The SEC also provided that cooperation with a company’s internal compliance program would be a factor in determining whether to increase a whistleblower’s award. 

The SEC broadened the type of information that may qualify for an award by making a whistleblower eligible for an award if the information provided reopens a closed investigation or opens a new line of inquiry in an existing investigation.  The SEC clarified those individuals who would not be eligible to participate in an award including

  • individuals with a pre-existing legal or contractual duty to report their information to the SEC
  • attorneys who attempt to use information obtained from client engagements to make whistleblower claims for themselves
  • individuals who obtain information that a court deems in violation of law
  • foreign government officials
  • officers, directors or partners of an entity who learn about securities violations through third-persons or who learn the information in connection with the entity’s process for identifying and reporting potential violations
  • compliance and internal audit personnel
  • public accountants working on SEC engagements 

The SEC also announced that it has completed initial staffing of the Office of the Whistleblower and that the Investor protection Fund from which awards will be paid, is fully funded.

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