The whistleblower program found in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was designed to reward persons who blow the whistle on an individual or company that is violating, or has violated, the federal securities laws. The award paid by the SEC is substantial, ranging between 10-30% of the “monetary sanctions” above $1 million imposed or collected from any action or proceeding brought by the Securities and Exchange Commission (SEC). The law also encourages participation by prohibiting retaliation and by strengthening the anti-retaliation provisions of the Sarbanes-Oxley Act.
To receive the reward, the whistleblower must be the first to notify the SEC of the violation of the securities laws. Timing is critical. The Act provides that only the first person or group of persons who provide information about a violation of the federal securities laws that leads to the successful recovery of monetary sanctions can receive the reward. The SEC will not consider your information if that information is known to the SEC, does not reflect your own knowledge or analysis, or is derived exclusively from an allegation made in a judicial or administrative hearing, governmental report, hearing, audit, or investigation, unless you are the source of the information.
The Act also includes strong provisions for confidentiality. The SEC cannot disclose any information, including information provided by a whistleblower, which can reveal the identity of a whistleblower, until the information is required to be disclosed to a defendant in a proceeding instituted by the government.
To be considered for an award, the final rules require that a whistleblower must:
Voluntarily provide the SEC … In general, a whistleblower is deemed to have provided information voluntarily if the whistleblower has provided information before the government, a self-regulatory organization or the Public Company Accounting Oversight Board asks for it directly from the whistleblower or the whistleblower’s representative. … with original information … Original information must be based upon the whistleblower’s independent knowledge or independent analysis, not already known to the SEC and not derived exclusively from certain public sources. … that leads to the successful enforcement by the SEC of a federal court or administrative action …
A whistleblower’s information can be deemed to have led to a successful enforcement action if:
The information is sufficiently specific, credible and timely to cause the Commission to open a new examination or investigation, reopen a closed investigation, or open a new line inquiry in an existing examination or investigation.
The conduct was already under investigation when the information was submitted, and the information significantly contributed to the success of the action.
The whistleblower reports original information through his or her employer’s internal whistleblower, legal, or compliance procedures before or at the same time it is passed along to the SEC; the employer provides the whistleblower’s information (and any subsequently-discovered information) to the SEC; and the employer’s report satisfies prongs (1) or (2) above.
… in which the SEC obtains monetary sanctions totaling more than $1 million. The rules permit aggregation of multiple SEC cases that arise out of a common nucleus of operative facts as a single action. These may include proceedings involving the same or similar parties, factual allegations, alleged violations of the federal securities laws, or transactions or occurrences.
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