Terms And Provisions Of The Whistleblower Program

What is a whistleblower? Under the Securities and Exchange Commission (SEC) whistleblower program, a whistleblower is someone who provides information regarding a securities violation that is about to occur, has already occurred or is ongoing.

The rules determining whether a whistleblower will be considered for a reward are that the whistleblower must: (1) voluntarily provide the SEC with (2) original information that (3) leads to the successful enforcement by the SEC of a federal court or administrative action in which (4) the SEC obtains monetary sanctions totaling more than $1 million.

According to the program, original information must be based on the whistleblower’s independent knowledge or independent analysis, not already known to the SEC and not gotten exclusively from public sources.

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

A whistleblower’s information can be deemed to have led to a successful enforcement action if: (1) the information is sufficiently specific, credible and timely to cause the SEC to open a new examination or investigation, reopen a closed investigation, or open a new line inquiry in an existing examination or investigation; (2) the conduct was already under investigation when the information was submitted, and the information significantly contributed to the success of the action; or (3) 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 SEC; the employer provides the whistleblower’s information (and any subsequently-discovered information) to the SEC; and the employer’s report satisfies prongs (1) or (2) above.

With regard to the $1 million requirement, the rules permit aggregation of multiple SEC 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.

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

However, under certain circumstances, compliance and internal audit personnel, as well as public accountants, can become whistleblowers when: (1) the whistleblower believes disclosure may prevent substantial injury to the financial interest or property of the entity or investors; (2); the whistleblower believes that the entity is engaging in conduct that will impede an investigation; or (3) 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.

Please contact our SEC Whistleblower Recovery Center at 1-866-381-2434 for a confidential, no obligation consultation to see if you can qualify for rewards for information about securities violations that you have information about.

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