November 16

2011 Annual Report on the Dodd-Frank Whistleblower Program

Yesterday, the Securities and Exchange Commission released its Annual Report on the Dodd-Frank Whistleblower Program for the Fiscal Year 2011, which ended on September 30th. Because the Final Rules became effective on August 12, 2011, the report only includes data for the seven weeks between August 12th and September 30th.

The S.E.C. reports receiving 334 whistleblower tips during this time period.  The most common complaint categories were market manipulation (16.2%), corporate disclosures and financial statements (15.3%), and offering fraud (15.6%).

Excluding the 26% of the complaints that did not indicate a state location, most of the complaints came from California and New York. In addition, 32 of the tips originated from a foreign country, including 10 from China and 9 from the United Kingdom.

Not surprisingly, the S.E.C. report indicates that no whistleblower bounties had been paid through September 30, 2011. Given the short reporting window of the current report, the next annual report should provide greater insight into the effectiveness and efficiency of the program.

For more information about the S.E.C. Whistleblower Program, see or contact Rosanne at Felicello Law P.C.

September 9

Key Features of the New Whistleblower Provisions of Section 21F of the Securities Exchange Act

On Friday, August 12, 2011, the United States Securities & Exchange Commission’s new Whistleblower Provisions went into effect. Here are the key points you should know if you manage a public company, work with securities, or have access to inside information concerning public companies:

Public Companies

The new provisions do not require potential whistleblowers to report a potential federal securities law violation to the company. Instead, the information may be given directly to the Commission and the company may not find out about the possible violation unless or until the Commission begins to investigate after receiving the tip.

The SEC Implementation Release notes that the interplay of the Whistleblower Provisions with the companies’ internal compliance procedures raises a “significant issue,” but the SEC decided against mandating internal reporting. Instead, the Provisions merely encourage internal reporting by treating voluntary compliance with internal reporting procedures as a potential factor to increase an award and treating interference with internal compliance procedures as a potential factor to decrease an award.

Essentially, the SEC does not want to put up any barriers to prevent information concerning potential violations of federal securities laws from reaching its doorstep. Thus, in a very real way, the floodgates have been opened. And public companies are on notice that they must develop a strong culture of internal reporting or face potential surprise investigations.

Potential Whistleblowers

Do you know about a possible violation of the federal securities laws? Do you have information about possible insider trading? Has the public company you work for committed accounting fraud?

You may be eligible for an award under the new Whistleblower Provisions if you provide the SEC with “original information” that “leads to a successful enforcement.” You will be considered to have met this criteria if you provide the Commission with information that is “sufficiently specific, credible, and timely to cause the staff to commence an examination, open an investigation . . . , or to inquire concerning different conduct . . . , and the Commission [brings] a successful judicial or administrative action based in whole or in part on conduct that was the subject of your original information” or if you provide original information concerning conduct already under investigation you may still qualify for an award if “your submission significantly contribut[es] to the success of the action.”

You may be entitled to receive an award for any action (including two or more related proceedings if they arise out of the same essential facts) in which the Commission obtains a monetary sanction of more than $1 million. The SEC will use its discretion in determining the amount of an award but the amount will be at least 10 percent and no more than 30 percent of the monetary sanctions that the Commission and other authorities collect.

You may be entitled to receive an award even if you took part in the securities law violation. Your culpability may be considered as a factor in determining the amount of any award you receive but it does not prevent you from receiving an award.

Additional Resources

United States Securities & Exchange Commission site —
SEC Whistleblower Information