June 201 1 Corporate & Securities Bulletin SEC ADOPTS FINAL RULES ON WHISTLEBLOWER PROGRAM By Douglas E. Haas and Carrie A. Benedict Whistleblowers now have an enhanced his submission before a request, inquiry, information that may be publicly incentive to provide information to the or demand is directed to the available but which reveals information Securities and Exchange Commission whistleblower or anyone representing that is not generally known or available (“SEC”) about possible securities the whistleblower (such as an attorney) to the public. Independent analysis violations. The whistleblower program by the SEC or other specified requires the whistleblower to do more was established as a result of the Dodd- government related body in an than merely point the SEC to disparate Frank Wall Street Reform and appropriate proceeding. A publicly available information that the Consumer Protection Act (“Dodd- whistleblower award is not available to whistleblower has assembled. Frank”), enacted in July 2010. Dodd- an individual who submits information Independent analysis requires that the Frank added new Section 21F (entitled after first being questioned about a whistleblower bring to the public “Securities Whistleblower Incentives matter by the SEC. A whistleblower information some additional evaluation, and Protection”) to the Securities cannot “voluntarily” submit information assessment, or insight. Exchange Act of 1934, requiring the if the whistleblower is required to report If the information or analysis was SEC to pay an award to specified types information to the SEC as a result of a acquired by an individual on behalf of a of whistleblowers. SEC Chairman Mary pre-existing legal duty, a contractual third party operating in a sensitive legal, L. Schapiro stated that “For an agency duty that is owed to the SEC or other compliance, or governance role, in the with limited resources like the SEC, it is authorities, or a duty that arises out of a performance of an engagement required critical to be able to leverage the judicial or administrative order. by the federal securities laws, or by resources of people who may have first- illegal means, the knowledge does not 2. ...with original hand information about violations of the constitute independent knowledge or information... securities laws.” On May 25, 2011, the analysis. “Original information” is information SEC adopted rules, effective August 12, The SEC will consider a whistleblower that is derived from the independent 2011, that will reward individuals who to be the original source of the same knowledge or independent analysis of provide information that lead to information that the SEC obtained from the whistleblower. It must not be already successful enforcement actions. another source if the information known to the SEC from any other The rules define a “whistleblower” as an satisfies the definition of original source, exclusively derived from an individual who, alone or with others, information and the other source allegation made in a judicial or provides the SEC with information obtained the information from the administrative hearing, in a relating to a possible violation of the whistleblower or the whistleblower’s governmental report, hearing, audit, or federal securities laws that has occurred, representative. A whistleblower can investigation, or from the news media, is ongoing, or is about to occur. also be deemed to be an original source unless the whistleblower is a source of In order to be considered for an award, a of information he or she provides that the information. whistleblower must meet the following materially adds to the SEC’s base of “Independent knowledge” is any factual requirements: knowledge about a matter. It is possible information in the whistleblower’s for an initial whistleblower and an possession that is not derived solely from 1. Voluntarily provide the additional whistleblower to both receive publicly available sources. “Independent SEC... an award when the additional analysis” means the whistleblower’s own A whistleblower provides information whistleblower voluntarily provides examination and evaluation of “voluntarily” if the whistleblower makes information that materially adds to what
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