U.S. SEC Whistleblower Rules Take Effect; Agency Lists Cases for Possible Claims

The Securities and Exchange Commission’s whistleblower program formally became effective Aug. 12, starting with a launch by the commission of a new webpage with detailed instructions on how would-be informants can submit claims for awards.

The webpage also includes a list of more than 100 cases between July 21, 2010, and Aug. 12 in which the SEC obtained monetary sanctions exceeding $1 million. The list—previously announced by Sean McKessy, the head of the SEC’s Whistleblower Office [see related report in this issue]—is a notice of covered actions that starts the clock ticking on the 90-day period in which potential whistleblowers can submit claims in relation to those cases.

Dodd-Frank Mandate

Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act directed the SEC to reward whistleblowers who voluntarily provide “original information” from 10 percent to 30 percent of monetary penalties where the penalties reach over $1 million. The reform act also provided that tips that the SEC received after the act’s passage on July 21, 2010—but before the effective date for the commission’s program—must be evaluated for inclusion in the bounty program if deemed “original information.”

In a release, SEC officials said the new whistleblower rules will help the commission’s enforcement program by making it easier for people who witness securities fraud to step forward. “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,” SEC Enforcement Director Robert Khuzami said in the release.

Attorneys interviewed separately by BNA said the program will develop over time based on the agency’s enforcement priorities, policy decisions, and possible court rulings [see related report in this issue].

Meanwhile, an SEC spokesman—asked how many claims the Whistleblower Office expects with respect to the covered actions listed Aug. 12—said the office did not have any “anticipated numbers.”…