SEC WHISTLEBLOWERS

Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the Securities and Exchange Commission (SEC) to pay a reward to a whistleblower who voluntarily discloses original information covering fraud or unlawful activity, leading to a sanction exceeding $1 million. Penalties, disgorgement, and interest paid count towards the $1 million threshold.

On May 25, 2011, The SEC adopted new rules implementing the Dodd-Frank Act, which is effective as of August 12, 2011.  Principal Attorneys, R. Scott Oswald and Nicholas Woodfield at The Employment Law Group® law firm discuss the significance of these rules in an article titled, The SEC's new rules for the Dodd-Frank whistle-blower program, and published in Westlaw's Journal on Employment, Volume 26, Issue 3.

How much is the SEC whistleblower reward?

What kinds of disclosures are eligible for an award?

What is "original information?"

Are there restrictions on who can receive a SEC whistleblower reward?

To be eligible to receive a reward, does a whistleblower have to be employed by the company committing the SEC violation?

Are employees who blow the whistle to the SEC protected from retaliation by their employer?

What forms of retaliation are prohibited?

What compensation can a prevailing employee recover?

Are SEC whistleblower retaliation claims subject to mandatory arbitration?

Am I protected from retaliation if I report SEC violations internally through my employer's compliance program?

What should I do if I've uncovered a SEC violation?

How much is the SEC whistleblower reward?  Back to top

The amount of the reward ranges from 10 to 30 percent of the amount recovered by the SEC as a result of the information the whistleblower provides. The SEC will consider the following factors to determine the amount of the reward:

• the significance of the information provided by the whistleblower;
• the degree of assistance provided by the whistleblower;
• the interest of the SEC in deterring violations of securities laws; and
• other factors that the SEC may establish by rule or regulation.

What kinds of disclosures are eligible for an award? Back to top

Disclosures regarding securities law violations – including violations of the Sarbanes-Oxley Act or Foreign Corrupt Practices Act – that lead to a sanction exceeding $1,000,000 are eligible for an award. The whistleblower must disclose the violation to the SEC before a government authority requests the information from the whistleblower. A whistleblower who first discloses the violation internally to his or her employer will still be eligible for a reward if the whistleblower also discloses the violation to the SEC within 120 days.

What is “original information?”  Back to top

Original information means information that is

1. derived from the independent knowledge of the whistleblower;
2. not known to the SEC from any other source, unless the whistleblower is the original source of the information; and
3. not exclusively derived from an allegation made in a judicial or administrative hearing, a government report, audit, or investigation, or the news media, unless the whistleblower is a source of the information.
   

Are there restrictions on who can receive a SEC whistleblower reward?  Back to top

The SEC is prohibited from granting a reward to a whistleblower who

• is convicted of a crime related to the judicial or administrative action for which the whistleblower provided information;
• gains the information by auditing financial statements as required by law;
• fails to submit information to the SEC as required by a SEC rule; OR
• is an employee of the Department of Justice or an appropriate regulatory agency, a self-regulatory organization, the Public Company Accounting Oversight Board, or a law enforcement organization.

An important victory for whistleblowers - the SEC's rules include exceptions permitting eligibility to officers, public accountants, and other personnel with compliance-related responsibilities when;

• The whistleblower reasonably believes that disclosing the information to the SEC is necessary to prevent the company from substantially harming the financial interests or propery of the company or its investors;
• The whistleblower reasonably believes the company is impeding the investigation of the misconduct
• At least 120 days have elapsed since the whistleblower provided the information to internal compliance personnel or his or her supervisor; or
• At least 120 days have elapsed since the whistleblower received the information, if he or she received the information under circumstances indicating that internal compliance personnel were already aware of the information.

To be eligible to receive a reward, does a whistleblower have to be employed by the company committing the SEC violation?  Back to top

No. Whistleblowers are not required to have worked at the company that committed the SEC violation.

Are employees who blow the whistle to the SEC protected from retaliation by their employer?  Back to top

Yes. Employers are prohibited from terminating or discriminating against an employee who discloses information about fraudulent or unlawful conduct to the SEC. Employers are also prohibited from retaliating against employees who participate in a SEC investigation or any judicial or administrative proceeding that is related to a whistleblower's disclosure.

What forms of retaliation are prohibited?  Back to top

The Dodd-Frank Act prohibits a broad range of adverse employment actions, including firing, demotion, suspension, threatened adverse employment actions, harassment, or any conduct that would dissuade an employee from reporting SEC violations.

What compensation can a prevailing employee recover?  Back to top

A prevailing employee can:

1. be reinstated to their former position;
2. recover double the wages owed to the employee in the form of back pay with interest; and
3. recover attorney fees and litigation costs, including expert witness fees.

Are SEC whistleblower retaliation claims subject to mandatory arbitration?  Back to top

No. The employee's right to file a whistleblower retaliation claim under Section 922 cannot be waived as a condition of employment or by a mandatory arbitration agreement.

Am I protected from retaliation if I report SEC violations internally through my employer’s compliance program?  Back to top

You likely would be protected under the Sarbanes-Oxley Act if those SEC violations also relate to fraud committed by the company against its shareholders. Furthermore, the SEC has recently proposed new rules that would protect an employee who reports SEC violations internally to the employer so long as the employee also reports the violations to the SEC within 90 days.

What should I do if I’ve uncovered a SEC violation?  Back to top

If you have uncovered a violation of SEC regulations or feel that you have been the subject of retaliation because of your disclosure regarding violations of SEC regulations, contact The Employment Law Group® law firm at 1-888-603-0983 or inquiry@employmentlawgroup.com.

The Employment Law Group® law firm recently published an article on the whistleblower provisions of the Dodd-Frank Act.

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