Securities and Exchange Commission Whistleblower Statute
In response to the global financial crisis in 2008, Congress passed financial reform legislation known as the Dodd-Frank Act in 2010, which came into effect in August 2011.
In addition to the sweeping new financial regulations, the Dodd-Frank Act contained whistleblower provisions to encourage and incentivize any natural person (not companies or entities) to report securities violations and expanded the protections for whistleblowers, which were in place under the Sarbanes-Oxley Act.
SEC Whistleblower Act Originality Requirement
The information provided to the SEC must be “original.” This requirement is met when the information a) is derived from the independent knowledge or analysis of a whistleblower; b) is not known to the SEC from any other source; and c) is not exclusively derived from an allegation made in a judicial administrative hearing, government report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information.
SEC Whistleblower Rewards
In order for whistleblowers to be eligible for SEC whistleblower awards, the information provided must result in a monetary recovery that exceeds $1 million. If this requirement is met, whistleblowers are entitled to 10% to 30% of the recovered amount.
However, certain individuals are barred from receiving a reward. If an individual has a legal or contractual duty with the government to report information to the SEC, then he/she would be precluded from receiving a reward. Additionally, the SEC will generally not grant rewards to attorneys, accountants , personnel with compliance-related duties, foreign officials, or whistleblowers obtaining information through commission of a crime.
The SEC Whistleblower Act beefs up anti-retaliation provisions of the False Claims Act by making retaliation its own right of action for employees who have been retaliated against, without regard to any other allegations of securities fraud violations.
Additionally, whistleblowers are protected by these provisions if they report a “facially plausible” relationship to a securities law violation, not a “material” violation. The rationale behind adopting this liberal approach is to incentivize whistleblowers to come forward, rather than screen themselves out because they are unsure about securities law.
The SEC Whistleblower Act provides special protection for financial services employees who might suffer retaliation, applying a wide scope of coverage over organizations that have any connection to providing consumer financial products or services. Remedies include reinstatement, back pay, compensatory damages, as well as attorneys’ fees and litigation costs.
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