• Securities and Exchange Commission Implements its New Whistleblower Program
  • August 30, 2011
  • Law Firm: Jones, Walker, Waechter, Poitevent, Carrère & Denègre L.L.P. - Birmingham Office
  • The Securities and Exchange Commission’s new whistleblower program became effective on August 12, 2011. Pursuant to its new program, the Securities and Exchange Commission (“SEC”) launched a new webpage for people to report a suspected violation of the federal securities laws and apply for a financial award.

    The new whistleblower program was authorized as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The SEC can pay financial rewards to whistleblowers who provide new and timely information about a potential securities law violation. The bounty program is designed to reward individuals who:

    • Voluntarily provide to the SEC
    • Provide original information about a violation of federal securities law
    • Provide information that leads to a successful enforcement action
    • Provide information that results in monetary sanctions that total more than one million dollars

    If a whistleblower satisfies these requirements, the program will award the whistleblower from 10 percent to 30 percent of the monetary penalties. The SEC has indicated that the higher percentages will be awarded to individuals who first reported the problem to the company's internal compliance department.

    The SEC says that the whistleblower program will help prevent securities fraud and avoid investor losses by promoting an early response from law enforcement. However, some companies have voiced concerns that the program may lead to treasure hunts by plaintiff lawyers as well as a new avenue for disgruntled employees to strike out at former employers. During the comment phase of the program, the SEC received more than 200 comment letters and more than 1,300 form complaint letters from major corporations and various chambers of commerce.

    The SEC has developed a new webpage at www.sec.gov/whistleblower. This website contains information on who is eligible and how to submit a tip or complaint, as well as instructions on how to apply for an award, and answers to frequently asked questions.

    The SEC says that the new whistleblower program has already increased the quality and timeliness of the tips that it has received. The SEC also believes that the whistleblower program will encourage companies to develop a credible, effective internal compliance program. However, critics have pointed out that the rules allow employees to bypass a company’s internal compliance department and report directly to the SEC. The program also contains new protections for employees against employer retaliation. However, the SEC has indicated that even when a report is made directly to the Commission, to conserve resources, it will often just hand the report back to the company involved and ask it to perform an internal investigation and report back to the SEC. This type of action is more likely when the company has demonstrated that it has a credible and effective internal compliance department.