Securities Enforcement and White Collar Litigation Alert: SEC Adopts Final Rule Implementing Dodd-Frank Whistleblower Program

On May 25, 2011, by a divided 3-2 vote, the Securities and Exchange Commission adopted a final rule implementing the whistleblower incentives provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”). A previous Client Alert summarized and discussed the key provisions of the proposed rule that the SEC unanimously submitted last November. Both the proposed rule and the final rule set forth the criteria that the SEC would employ in making monetary awards to whistleblowers pursuant to Section 922 of Dodd-Frank, incorporated into the Securities Exchange Act of 1934 in a new Section 21F. That section created a bounty program allowing individuals who provide information leading to a successful SEC enforcement action (resulting in sanctions of greater than $1 million) to receive 10 to 30 percent of the amount collected. The final rule, in several ways, relaxed standards set forth in the proposed rule, expanded definitions, and makes it possible for more whistleblowers, in a greater number of circumstances, to submit less information yet remain eligible to receive an award. Most significantly, the final rule reflects the Commission’s decision not to require whistleblowers to first report information through internal channels before providing award-eligible tips to the SEC.