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Securities and Exchange Commission Promulgates Rules Implementing Whistleblower Provisions of the Dodd-Frank Act
5/27/2011

On May 25, 2011, the Securities and Exchange Commission (“SEC”) promulgated rules to implement the whistleblower provisions of the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (“Dodd-Frank Act”), which President Obama signed into law on July 21, 2010.

The whistleblower provisions of the Dodd-Frank Act enable the SEC to pay rewards to whistleblowers – at both publicly traded companies and at privately held companies - who voluntarily provide so-called “original information” about securities law violations -- from insider trading to money laundering to violations of the Foreign Corrupt Practices Act -- that leads to the SEC recovering funds in successful enforcement actions. To be eligible for a reward, individuals must provide information to the SEC that is “derived from the independent knowledge or analysis of a whistleblower,” not known to the [SEC] from any other source, unless the whistleblower is the original source of the information,” and “not exclusively derived from an allegation made in a judicial or administrative hearing, in a government report, hearing, audit or investigation, or from the news media, unless the whistleblower is a source of the information.”

If the whistleblower information leads to a successful enforcement action which results in sanctions exceeding $1,000,000, the whistleblower shall be paid a reward of between 10 percent and 30 percent of the sanctions collected by the SEC. The SEC has discretion to determine the exact percentage of the reward, but must consider the significance of the information received from the whistleblower, the degree of assistance provided by the whistleblower and any legal representative of the whistleblower, and the “programmatic interest” in deterring future violations. Given the magnitude of sanctions often imposed by the SEC for security law violations, the Dodd-Frank Act provides significant monetary incentives for potential whistleblowers.

Importantly, the Dodd-Frank Act provides broad anti-retaliation protections. Employers must not fire, demote, suspend, threaten, harass, or discriminate against a whistleblower. The Dodd-Frank Act allows whistleblowers to bring retaliation claims directly in Federal Court for a period that may extend up to 10 years after the date of the alleged retaliatory conduct. Whistleblowers have a right to a jury trial in such cases, thus opening the possibility of obtaining large jury verdicts. In addition, whistleblowers do not have to exhaust administrative remedies before the Department of Labor before filing suit in Federal Court. Prevailing whistleblowers are eligible for reinstatement, double back pay with interest and compensation for litigation costs, including expert witness fees and reasonable attorney fees.

Further, the Dodd-Frank Act generally requires the SEC to keep whistleblowers’ identities confidential. Whistleblowers may report original information anonymously, so long as they have retained a lawyer to represent them. It is possible for whistleblowers’ identities to remain unknown to the SEC and the CFTC until the time of payment of a reward.

Under the rules promulgated by the SEC on May 25, 2011, employees are not required to report wrongdoing to their employers first before going to the SEC. The SEC, however, will offer incentives to those who choose to do so. If whistleblowers first make use of a company’s internal programs on whistleblowing, the SEC will give them credit when determining the size of their rewards, and they will get more money from the SEC. In addition, if employees report a minor or non-specific violation internally, and the company investigates, and finds a broader problem, and then tells the SEC, employees will get credit for all the information.

We can help you perfect your whistleblower claim, and provide you top-notch legal representation. We can help you develop the information that you possess, and put into a format that the SEC can easily understand and act upon. As one of the most successful plaintiff’s law firms in the United States, we have a proven track record of success. We will fight hard to maximize your reward. We take SEC whistleblower claims on a contingency fee basis, so we do not get paid unless, and until, we actually collect your reward. Our fee is a percentage of the proceeds that are ultimately rewarded to you.

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