KMK Law Corporate & Securities Blog

On May 25, 2011, over a month after its scheduled release date, the SEC adopted rules to implement Section 21F of the Exchange Act, "Securities Whistleblower Incentives and Protection," which was added by Section 922 of Dodd-Frank. Section 21F directs the SEC to pay awards to eligible whistleblowers who voluntarily provide the SEC with original information about a violation of the federal securities laws that leads to a successful enforcement action resulting in monetary sanctions over $1 million. Awards will be between 10% and 30% of the total monetary sanctions collected. While the final rules provide some incentives for individuals to report possible violations first (or only) to their employers, rather than to the SEC, they continue to provide significant financial incentives for individuals to report directly to the SEC, bypassing a company’s internal compliance process.

In response to the new rules, which take effect in 60 days from their publication in the Federal Register, companies should review and update compliance and ethics programs to ensure their programs allow them to identify, investigate, and handle possible misconduct quickly and effectively.