SEC Establishes a Whistleblower Award Program

On May 25, 2011, the SEC adopted the final rules in the Dodd-Frank whistleblower program. The program allows the SEC to give whistleblowers a financial award provided the case meets specific requirements. A whistleblower is an individual that gives the SEC unknown information concerning violations of federal securities laws and fraud. The whistleblower receives the award from the SEC if the information given leads to successful prosecution of the perpetrators or monetary punishment exceeding $1 million.

Whistleblower Financial Rewards  

Under this new regulation, whistleblowers are entitled to 10%-30% of the monetary amount the SEC recovers in a suit against a perpetrator of fraud. The awards are taken out of the Investor Protection Fund, a stash that has a current balance of $450 million.

Confidentiality

The whistleblower program contains one of the strongest confidentiality provisions for whistleblowers ever enacted. For the first time, whistleblowers will be allowed to report fraud anonymously. In some cases, their identities may remain unknown even to the SEC until the time comes for the payment of a reward.

Job Protection

The law prohibits employers from retaliating against whistleblowers. Employers may not fire, demote, suspend, threaten, harass, or discriminate against a whistleblower. Whistleblowers who suffer from employment retaliation may sue for reinstatement.

There is considerable controversy surrounding the new rules in the Dodd-Frank whistleblower program. Companies worry that the financial incentives of the program will encourage employees to divulge company information and bypass the company reporting system completely. These companies requested that the SEC require whistleblowers to report misconduct to the company before taking it to the SEC in order to qualify for the whistleblower award. The SEC did not grant this request but tried to compromise by providing incentives to go through the company system before reporting misconduct to the SEC.

It is important for a whistleblower to retain an experienced securities attorney. The SEC requires a whistleblower to pass information through an attorney if he or she wishes to remain anonymous. Additionally, the attorney can negotiate with the SEC to provide the highest possible award for their client. The whistleblower program protects whistleblowers from retaliation by the company that he or she reported for misconduct. The following types of fraud are just a few of the violations a whistleblower can report.

•  Insider trading

•  Ponzi schemes

•  False representation of a company's financial situation

•  Abuse of naked short selling

•  Theft

•  Fraud relating to securities and pension funds

•  Manipulation of the price of securities

•  Sale of unregistered securities

•  Fraudulent sale of securities

The Wall Street Reform and Consumer Protection Act provides whistleblowers who report suspected securities fraud violations with financial rewards , confidentiality , and protection against employer retaliation , making the decision to report securities law violations significantly more attractive for many potential whistleblowers. Even those whistleblowers that were securities law violators themselves are protected and may be eligible for cooperation agreements that limit their civil liability.  If you are a potential whistleblower and would like a free and confidential consultation please give investment fraud attorney Peter J. Mougey at Levin Papantonio a call 1-888-435-7001.

Please visit: http://www.sec.gov/news/press/2011/2011-116.htm for more information