SEC Eligibility Provisions

SEC Whistleblowers – Eligibility & Exclusions

 

Eligibility Provisions:

Pursuant to the following informal guidance from the SEC, whistleblowers must:

Voluntarily provide the SEC …

In general, a whistleblower is deemed to have provided information voluntarily if the whistleblower has provided information before the government, a self-regulatory organization or the Public Company Accounting Oversight Board asks for it directly from the whistleblower or the whistleblower’s representative.

… with original information …

Original information must be based upon the whistleblower’s independent knowledge or independent analysis, not already known to the Commission and not derived exclusively from certain public sources.

… that leads to the successful enforcement by the SEC of a federal court or administrative action …

A whistleblower’s information can be deemed to have led to a successful enforcement action if:

The information is sufficiently specific, credible and timely to cause the Commission to open a new examination or investigation, reopen a closed investigation, or open a new line inquiry in an existing examination or investigation.

The conduct was already under investigation when the information was submitted, and the information significantly contributed to the success of the action.

The whistleblower reports original information through his or her employer’s internal whistleblower, legal, or compliance procedures before or at the same time it is passed along to the Commission; the employer provides the whistleblower’s information (and any subsequently-discovered information) to the Commission; and the employer’s report satisfies prongs (1) or (2) above.

… in which the SEC obtains monetary sanctions totaling more than $1 million.

The rules permit aggregation of multiple Commission cases that arise out of a common nucleus of operative facts as a single action. These may include proceedings involving the same or similar parties, factual allegations, alleged violations of the federal securities laws, or transactions or occurrences.

Exclusions from Award:

Certain people generally will not be considered for whistleblower awards under the final rules.

These include:

– People who have a pre-existing legal or contractual duty to report their information to the Commission.

– Attorneys (including in-house counsel) who attempt to use information obtained from client engagements to make whistleblower claims for themselves (unless disclosure of the information is permitted under SEC rules or state bar rules).

– People who obtain the information by means or in a manner that is determined by a U.S. court to violate federal or state criminal law.

– Foreign government officials.

– Officers, directors, trustees or partners of an entity who are informed by another person (such as by an employee) of allegations of misconduct, or who learn the information in connection with the entity’s processes for identifying, reporting and addressing possible violations of law (such as through the company hotline).

– Compliance and internal audit personnel.

– Public accountants working on SEC engagements, if the information relates to violations by the engagement client.

However, in certain circumstances, compliance and internal audit personnel as well as public accountants could become whistleblowers when:

– The whistleblower believes disclosure may prevent substantial injury to the financial interest or property of the entity or investors.

– The whistleblower believes that the entity is engaging in conduct that will impede an investigation.

– At least 120 days have elapsed since the whistleblower reported the information to his or her supervisor or the entity’s audit committee, chief legal officer, chief compliance officer – or at least 120 days have elapsed since the whistleblower received the information, if the whistleblower received it under circumstances indicating that these people are already aware of the information.

Certain other people – such as employees of certain agencies and people who are criminally convicted in connection with the conduct – are already excluded by Dodd-Frank.

Under the final rules, the Commission also will not pay culpable whistleblowers awards that are based upon either:

– The monetary sanctions that such culpable individuals themselves pay in the resulting SEC action.

– The monetary sanctions paid by entities whose liability is based substantially on conduct that the whistleblower directed, planned or initiated.

– The purpose of this provision is to prevent wrongdoers from benefitting by, in effect, blowing the whistle on themselves.

 

Click here for the final SEC whistleblower rules