On May 25, the Securities and Exchange Commission adopted new rules concerning the whistleblower program implemented under Section 922 of the Dodd-Frank Act. In a party-line divided vote of 3-2, the SEC took a “middle of the road” approach to the controversial aspect of the rule of whether to require a whistleblower to first inform his or her company of the alleged conduct. While the SEC did not require whistleblowers to take this step, it provided additional monetary incentives for those who do and guaranteed whistleblower status to those who report internally where the company subsequently discloses the conduct to the SEC. The new rules, which become effective 60 days after publication in the Federal Register, require a whistleblower provide the SEC with original information that results in the successful enforcement by the agency in a federal court or administrative proceeding where the SEC obtains more than $1 million in sanctions.
The requirement for internal reporting of alleged conduct has been hotly debated. Senior Vice President and General Counsel of the Association of Corporate Counsel Susan Hackett characterized the SEC’s new rules as a “Pandora’s box.” Likewise, public companies have criticized the SEC’s new rules and foreshadowed the potential damage to internal compliance and reporting systems.
In contrast, SEC Chairman Mary Schapiro commented that the rules “are intended to the break the silence of those who see a wrong” and that the SEC found the proper balance between encouraging whistleblowers to report internally, but also gave them the option to contact the SEC directly.
Read the SEC Press Release in its entirety here.