SEC's New Whistleblower Program Finally Takes Effect

With its new whistleblower program officially becoming effective last Friday, the Securities and Exchange Commission has launched a new webpage for people to report a violation of the federal securities laws and apply for a financial award.

The Dodd-Frank Wall Street Reform and Consumer Protection Act provided the SEC with the authority to pay financial rewards to whistleblowers who provide new and timely information about any securities law violation. Among other things, to be eligible, the whistleblower’s information must lead to a successful SEC enforcement action with more than $1 million in monetary sanctions.

The SEC’s new webpage at www.sec.gov/whistleblower includes information on eligibility requirements, directions on how to submit a tip or complaint, instructions on how to apply for an award, and answers to frequently asked questions.

“Early and quick law enforcement action is the key to preventing securities fraud and avoiding investor losses, and the whistleblower program gives us the tools to help achieve that goal,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

Sean McKessy, Chief of the SEC’s Office of the Whistleblower, added, “Securities fraud is not a victimless crime. That’s why why it is so important for people to step forward when they witness an ongoing securities fraud or learn about one that has taken place or is about to occur. Our new whistleblower award program makes it easier for people to take that step.”

The SEC’s new whistleblower program strengthens the SEC’s ability to protect investors in several ways:

- Better Tips: Over the past several months, the SEC has seen an increase in the quality of tips that it has been receiving from individuals since Congress created the program.

- Timely Tips: Potential whistleblowers are incentivized to come forward sooner rather than later with “timely” information not yet known to the SEC.

- Maximizes Outside Resources: With fewer than 4,000 employees to regulate more than 35,000 entities, the SEC cannot be everywhere at all times. With a robust whistleblower program, the SEC is more likely to find and deter wrongdoing at firms it may not have otherwise uncovered.

- New Protections Against Retaliation: Employees who come forward are provided with new tools to protect themselves against employers who retaliate.

- Bolsters Internal Compliance: The new rules provide significant incentives for employees to report any wrongdoing to their company’s internal compliance department before coming to the SEC. Therefore, companies that would prefer their employees report internally first are incentivized to a have credible, effective compliance program in place.

The SEC adopted final rules on May 25 to implement the Dodd-Frank whistleblower program. Individuals wishing to be considered for an award under the Whistleblower Program are required to submit an online questionnaire or the newly approved Form-TCR.

Prior to the enactment of the Dodd-Frank Act, the SEC only had authority to reward whistleblowers in insider trading cases.

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