SEC Adopts New Whistleblower Program
The Dodd-Frank Act has given the Securities and Exchange Commission power to create a new whistleblower program.
On May 25, the SEC adopted rules under Section 922 of the Dodd-Frank Act to create a whistleblower program that rewards individuals who provide the agency with tips that lead to successful enforcement actions.
To be considered for an award, the final rules say a whistleblower is deemed to have provided information voluntarily if they have provided information before the government, a self-regulatory organization or if the Public Company Accounting Oversight Board asks for it directly from the whistleblower or their representative.
The whistleblower must also provide original information based upon their independent knowledge or independent analysis, not already known to the SEC and not derived exclusively from certain public sources.
The SEC has three conditions that define a successful enforcement action as a result of a whistleblower’s efforts.
One, 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.
Second, the conduct must have been already under investigation when the information was submitted, and the information significantly contributed to the success of the action.
Finally, 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 must also provide the whistleblower’s information to the agency.
SEC Chairman Mary Schapiro said while the commission has a history of receiving a high volume of tips and complaints, the quality of the tips received has been better since Dodd-Frank became law.
The SEC’s rules will be effective 60 days after they are submitted to Congress or published in the Federal Register.
The House Financial Services Committee also recently announced the creation of a whistleblower website.