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Dodd-Frank 30 Day Countdown: Day 14

Insight Robin Powers Robin Powers · July 02, 2011

SEC Finalizes Whistleblowing Rules

With all the Securities and Exchange Commission (SEC) has on its plate, one may wonder why the whistleblower provisions of the Dodd-Frank Act were one of the first to be finalized. These provisions will become effective August 12, 2011.

The whistleblower provisions are perhaps the most interesting aspect of the Dodd-Frank legislation.  Under the new rules, if a whistleblower is aware of a violation of a securities law, and reports original information to the SEC prior to any information requests by the agency, and the information provided results in monetary sanctions over $1 million, the whistleblower is rewarded. 

So how much do whistleblowers stand to profit? They could receive a whopping 10 to 30% of the monetary sanctions levied on the violating company. Since the whistleblowing action has to exceed a sanction amount of $1 million, whistleblowers that are successful in their endeavors can walk away with at least one hundred thousand dollars.

A whistleblower may be more inclined to first report a possible securities law violation within his/her own company to the company’s corporate compliance office. The whistleblower remains eligible for the reward if he/she reports the violation to the SEC within 120 days of first reporting it internally.  The SEC rules make it clear that employees who report an SEC violation at their employer will not be in violation of any confidentiality agreements with that employer.

The Dodd-Frank whistleblower provisions claim to protect whistleblowing employees against employer retaliation (even if they are wrong in their allegations).  But in reality, it’s hard to imagine that any employee who reports an internal problem to an outside regulator (rather than allowing the company to manage the issue itself) is long for his/her job. 

-Stephanie Kane co-authored this post