SEC WHISTLEBLOWER LAW
In the summer of 2010, Congress passed a financial regulatory overhaul as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which includes whistleblower provisions for violations of the nation's securities laws. Although Congress previously afforded protection to whistleblowers that provided information concerning the violations of the securities laws under the Sarbanes-Oxley Act of 2002, those provisions were deemed weak and insufficient. The new law, for the first time, provides for payments to whistleblowers who provide information that the Securities and Exchange Commission ("SEC") uses in furtherance of an enforcement action.
SEC whistleblowers may file complaints with their identity disclosed or anonymously. Whistleblowers that submit complaints anonymously must be represented by counsel. The identity of a whistleblower must be revealed only prior to the payment of an award. The SEC whistleblower provisions, subject to various criteria, allow a whistleblower to collect between 10% and 30% of the total of monetary sanctions recouped through an SEC enforcement action in which the monetary sanctions exceed $1 million. Monetary sanctions include any monies, including penalties, disgorgement and interest.
Unlike the Federal False Claims Act, however, SEC whistleblowers do not file a lawsuit in furtherance of their claims. Rather, the whistleblower submits a complaint directly to the SEC. The SEC then investigates to determine whether to bring an enforcement action against the purported violators. Any determinations under the new law may be appealed to the appropriate United States Court of Appeals.
The SEC whistleblower provisions also prohibit any corporation that is subject to a whistleblower claim or investigation from retaliating against a whistleblower. Any whistleblower that has been retaliated against may file a civil lawsuit in a federal court for damages resulting from the retaliatory conduct. A whistleblower who has been retaliated against may receive reinstatement, two times the amount of back pay, and compensation for litigation costs, expert witness fees and attorney fees.
As a result of the important substantive and procedural provisions, potential securities whistleblowers should obtain the support of experienced legal counsel. The lawyers in our national qui tam whistleblower practice group have the unique skills and experiences needed to protect the interests of securities whistleblowers. If you know of SEC Fraud being committed, contact, us at 917-519-8417 for a confidential consultation and let us put our experience to work for you. Below is the SEC Statute.
SEC. 922. WHISTLEBLOWER PROTECTION.
(a) IN GENERAL.—The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting after section 21E the following:
SEC. 21F. SECURITIES WHISTLEBLOWER INCENTIVES AND PROTECTION.
(a) DEFINITIONS.—In this section the following definitions shall apply:
(1) COVERED JUDICIAL OR ADMINISTRATIVE ACTION.—The term ‘covered judicial or administrative action’ means any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1,000,000.
(2) FUND.—The term ‘Fund’ means the Securities and Exchange Commission Investor Protection Fund.
(3) ORIGINAL INFORMATION.—The term ‘original information’ means information that—
(A) is derived from the independent knowledge or analysis of a whistleblower;
(B) is not known to the Commission from any other source, unless the whistleblower is the original source of the information; and
(C) is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information.
(4) MONETARY SANCTIONS.—The term ‘monetary sanctions’, when used with respect to any judicial or administrative action, means—
(A) any monies, including penalties, disgorgement, and interest, ordered to be paid; and
(B) any monies deposited into a disgorgement fund or other fund pursuant to section 308(b) of the Sarbanes- Oxley Act of 2002 (15 U.S.C. 7246(b)), as a result of such action or any settlement of such action.
(5) RELATED ACTION.—The term ‘related action’, when used with respect to any judicial or administrative action brought by the Commission under the securities laws, means any judicial or administrative action brought by an entity described in subclauses (I) through (IV) of subsection (h)(2)(D)(i) that is based upon the original information provided by a whistleblower pursuant to subsection (a) that led to the successful enforcement of the Commission action.
(6) WHISTLEBLOWER.—The term ‘whistleblower’ means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.
(b) AWARDS.—
(1) IN GENERAL.—In any covered judicial or administrative action, or related action, the Commission, under regulations prescribed by the Commission and subject to subsection (c), shall pay an award or awards to 1 or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the covered judicial or administrative action, or related action, in an aggregate amount equal to—
(A) not less than 10 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions; and
(B) not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions.
(2) PAYMENT OF AWARDS.—Any amount paid under paragraph (1) shall be paid from the Fund.
(c) DETERMINATION OF AMOUNT OF AWARD; DENIAL OF AWARD.—
(1) DETERMINATION OF AMOUNT OF AWARD.—
(A) DISCRETION.—The determination of the amount of an award made under subsection (b) shall be in the discretion of the Commission.
(B) CRITERIA.—In determining the amount of an award made under subsection (b), the Commission—
(i) shall take into consideration—
(I) the significance of the information provided by the whistleblower to the success of the covered judicial or administrative action;
(II) the degree of assistance provided by the whistleblower and any legal representative of the whistleblower in a covered judicial or administrative action;
(III) the programmatic interest of the Commission in deterring violations of the securities laws by making awards to whistleblowers who provide information that lead to the successful enforcement of such laws; and
(IV) such additional relevant factors as the Commission may establish by rule or regulation; and
(ii) shall not take into consideration the balance of the Fund.
(2) DENIAL OF AWARD.—No award under subsection (b) shall be made—
(A) to any whistleblower who is, or was at the time the whistleblower acquired the original information submitted to the Commission, a member, officer, or employee of—
(i) an appropriate regulatory agency;
(ii) the Department of Justice;
(iii) a self-regulatory organization;
(iv) the Public Company Accounting Oversight Board; or
(v) a law enforcement organization;
(B) to any whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section;
(C) to any whistleblower who gains the information through the performance of an audit of financial statements required under the securities laws and for whom such submission would be contrary to the requirements of section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j–1); or
(D) to any whistleblower who fails to submit information to the Commission in such form as the Commission may, by rule, require.
