SEC Whistleblower Rules Herald New Day For Reporting Corporate Crime

Employees who blow the whistle on suspected corporate wrongdoing under federal securities laws will qualify for a financial reward from the U.S. government if certain requirements are met, under new rules adopted by the Securities and Exchange Commission today.

The long-anticipated rules, adopted under a provision of the financial reform law, otherwise known as Dodd-Frank, set up a rewards system for persons who provide information to the SEC relating to a possible violation of the securities laws that has occurred, is ongoing or is about to occur.

The following wording is taken directly from an SEC fact sheet explaining the rules:

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 Commission 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:
    1. 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.
    2. The conduct was already under investigation when the
      information was submitted, and the information significantly contributed to the success of the action.
    3. 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 Commission; the
      employer provides the whistleblower’s information (and any
      subsequently-discovered information) to the Commission; 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 Commission 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.

The rules will go into effect 60 days after they are submitted to Congress or published in the Federal Register.

Read more about the rules on the SEC’s whistleblower rules page.

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