The U.S. Securities and Exchange Commissioners recently voted 3-2 to implement a new rule that allows corporate whistle-blowers to collect as much as 30% of penalties when they report financial wrongdoing. The rules implement Section 922 of the Dodd-Frank Act. The program was created to “reward individuals who provide the agency with high-quality tips that lead to successful enforcement actions.”
This program was put in place after the SEC was blamed by lawmakers for fumbling tips regarding Bernard Madoff’s multibillion-dollar fraud.
So how does a whistle-blower qualify under the program? The rule allows for the SEC to consider rewards for whistle-blowers ranging from 10% to 30% of penalties collected where sanctions exceed $1 million. The whistle-blower must voluntarily provide information based on his or her own independent knowledge before the SEC or other regulators request it.
One controversial part of the program is that whistle-blowers are rewarded even when they bypass companies’ internal complaint systems. The fear is that whistle-blowers will bypass internal programs and go straight to the SEC, leaving the companies in the dark. To protect companies’ internal programs, the SEC program increases the incentive for those whistle-blowers that report to their company before going to the agency. The SEC program saves whistle-blowers places in line for 120 days when they choose to report to their company first. The SEC will also consider a whistle-blower’s participation in a company program when determining the percentage of sanctions he or she will receive.
It will be interesting to see the results from this new incentive program and whether or not it leads to more tips to the SEC. Having an experienced attorney who understands these complex rules is very important. If you need the assistance of a San Francisco white collar criminal attorney, call Christopher Morales for a free consultation.