On March 25, 2011, the SEC published its final rules implementing the new SEC whistleblower award program. The SEC received over 240 comments regarding its proposed rules. One of the biggest and most contentious debates was whether to prohibit whistleblowers from being rewarded if they did not utilize their company's internal compliance programs. Many companies stated that their internal compliance programs would be undermined if whistleblowers could report directly to the SEC without informing the company first. Ultimately, in the final rules, the SEC created particular incentives for whistleblowers who use their company's internal compliance programs, such as making internal compliance one of the positive factors that the SEC considers in determining the percentage award. However, the SEC ultimately concluded that it was not in the best interests of the public to make use of the company's internal compliance program mandatory in order for whistleblowers to receive an award.
The new rules also have provisions that say that sanctions may be aggregated for actions with the same nucleus of facts for the purpose of determining whether total sanctions add up to $1,000,0000. Under Dodd-Frank (the name of the law which created the SEC whistleblower award program), the SEC must successfully recover more than $1,000,000 in order for the whistleblower to receive a reward. Under the proposed rules, a whistleblower could only recover an award if the SEC obtained sanctions of over $1,000,000 in a single action. This final rule allowing aggregation is helpful to whistleblowers in many situations. For example, if the SEC recovered sanctions against a company, and then brought an action against individuals for the same actions, then the SEC will aggregate the total amount of sanctions from the two actions to determine whether the total amount of sanctions recovered is over $1,000,000.
Another significant provision of the rules is that it includes the Tip, Complaint, or Referral Form (Form TCR) that whistleblowers will be required to fill out in order to obtain a reward. A whistleblower has the choice whether to submit the information electronically, by mail or delivery, or by fax. The SEC's original proposed rule had two required forms for whistleblowers tips, but after receiving many comments, the SEC decided to consolidate the forms into one form. An important provision of Form TCR to be aware of is that whistleblowers have the option to report anonymously, but if they decide to use this option, they must be represented by an attorney. Whistleblowers must disclose their identity once the SEC has brought a successful action and the whistleblower requests an award. In addition, Whistleblowers must sign a copy of Form TCR and give it to their attorney, and must present their attorney with a valid form of government I.D. Although they are allowed to report anonymously, whistleblowers must agree that their attorney can release their signed form (which would reveal their identity) if the SEC requests it due to concerns that the whistleblower has been untruthful.
The SEC also published its procedures for determining who receives an award once a successful action has been taken. The whistleblower must fill out the application for award form (Form WB-APP) that is included in the final rules in order to receive an award. There are deadlines for submitting the form once the SEC has successfully recovered sanctions and published a notice, so it is essential for whistleblowers and their attorneys to pay close attention to these deadlines. The new SEC rules plus the SEC's explanations of the rules and the comments received are available at: http://www.sec.gov/rules/final/2011/34-64545.pdf.
The new rules also have provisions that say that sanctions may be aggregated for actions with the same nucleus of facts for the purpose of determining whether total sanctions add up to $1,000,0000. Under Dodd-Frank (the name of the law which created the SEC whistleblower award program), the SEC must successfully recover more than $1,000,000 in order for the whistleblower to receive a reward. Under the proposed rules, a whistleblower could only recover an award if the SEC obtained sanctions of over $1,000,000 in a single action. This final rule allowing aggregation is helpful to whistleblowers in many situations. For example, if the SEC recovered sanctions against a company, and then brought an action against individuals for the same actions, then the SEC will aggregate the total amount of sanctions from the two actions to determine whether the total amount of sanctions recovered is over $1,000,000.
Another significant provision of the rules is that it includes the Tip, Complaint, or Referral Form (Form TCR) that whistleblowers will be required to fill out in order to obtain a reward. A whistleblower has the choice whether to submit the information electronically, by mail or delivery, or by fax. The SEC's original proposed rule had two required forms for whistleblowers tips, but after receiving many comments, the SEC decided to consolidate the forms into one form. An important provision of Form TCR to be aware of is that whistleblowers have the option to report anonymously, but if they decide to use this option, they must be represented by an attorney. Whistleblowers must disclose their identity once the SEC has brought a successful action and the whistleblower requests an award. In addition, Whistleblowers must sign a copy of Form TCR and give it to their attorney, and must present their attorney with a valid form of government I.D. Although they are allowed to report anonymously, whistleblowers must agree that their attorney can release their signed form (which would reveal their identity) if the SEC requests it due to concerns that the whistleblower has been untruthful.
The SEC also published its procedures for determining who receives an award once a successful action has been taken. The whistleblower must fill out the application for award form (Form WB-APP) that is included in the final rules in order to receive an award. There are deadlines for submitting the form once the SEC has successfully recovered sanctions and published a notice, so it is essential for whistleblowers and their attorneys to pay close attention to these deadlines. The new SEC rules plus the SEC's explanations of the rules and the comments received are available at: http://www.sec.gov/rules/final/2011/34-64545.pdf.
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Jennifer L. McIntosh is an attorney at Waters & Kraus, LLP, in the firm’s West Coast practice — Waters, Kraus & Paul. Her practice focuses on class action cases, qui tam (whistleblower), and commercial litigation.
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