As you know by now, the SEC voted unanimously to propose a whistleblower program to reward individuals who provide the agency with high-quality tips that lead to successful enforcement actions.  What you may not know are the details.  The SEC seeks comment on the proposal by 12/17/10.

As proposed, would-be whistleblowers will have a simple, straightforward procedure for providing critical information to the SEC.  The new rule conveys how whistleblowers can qualify for an award through a transparent process that provides them a meaningful opportunity to assert their claim to an award.  To be considered for an award, a whistleblower must voluntarily provide (I) the SEC with original information (II) about a violation of the federal securities laws (III) that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million (IV). 

Prior to Dodd-Frank, the Agency’s bounty program was limited to insider trading cases and the amount of an award was capped at 10% of the penalties collected in the action.

    Who's Not Eligible to Collect.   Certain people would generally not be considered for whistleblower awards under the proposed rules, including:

• People with a pre-existing legal or contractual duty to report their information.
• Attorneys who attempt to use information obtained from client engagements to make whistleblower claims for themselves (unless disclosure of the information is permitted under SEC rules or state bar rules).
• Independent public accountants who obtain information through an engagement required under the securities laws.
• Foreign government officials.
• Wrongdoers who, in effect, blow the whistle on themselves.
• Employees of certain agencies and people who are criminally convicted in connection with the conduct.
• People who learn about violations through a company’s internal compliance program or who are in positions of responsibility for an entity, and the information is reported to them in the expectation that they will take appropriate steps to respond to the violation.

This last exclusion - intended to prevent company personnel from “front running” legitimate internal investigations - ceases to be applicable if the company does not disclose the information to the SEC within a reasonable time or acts in bad faith.  In these circumstances, such people can become whistleblowers.

For further details, click onto:   [ SEC PR 10-213, 11/3 ]   or   [ SEC Proposed Rule Rel. 34-63237 ]