Whistleblowers play an important public function in today’s marketplace by exposing fraud and corporate wrongdoing. Whistleblowers often fear retaliation.
The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted on July 21, 2010. The Act includes, among other aspects of financial regulatory reform, significant new incentives for employees and others to blow the whistle when they are aware of securities law violations. Section 922 of the Act authorizes the SEC to pay rewards between 10 and 30 percent of the total penalties imposed by the agency to individuals who provide the Commission with original information that leads to successful SEC enforcement actions and certain related actions of at least $1 million. To be considered for an award, a person must be a (i) whistleblower who (ii) voluntarily provides (iii) original information that (iv) leads to a successful enforcement action totaling more than $1 million.
On September 25, 2012, a federal judge in Connecticut resolved an apparent tension between the anti-retaliation provision of the Act and the definition of “whistleblower” in a way that broadly interprets the protections afforded to employees who report issues they “reasonably believe” constitute violations of the securities laws, even where the employee has never raised the issue with the Securities and Exchange Commission. The decision by Judge Underhill in Kramer v. Trans-Lux Corp., appears to be the first in which and the ruling appears to extend whistleblower protection to all individuals who report or disclose, either internally or to the SEC, alleged violations that are “required or protected” under the Sarbanes-Oxley Act of 2002, the Securities Exchange Act of 1934, 18 U.S.C. § 1513(e), or any other law, rule, or regulation subject to the jurisdiction of the SEC.
The SEC Whistleblower Program permits whistleblowers to report anonymously. A whistleblower must be represented by an attorney and provide the attorney a copy of the whistleblower submission signed under the penalty of perjury. The attorney will verify the identity of the whistleblower before any information is submitted to the SEC; serve as an intermediary between the SEC and whistleblower during any investigation and related enforcement action; and, in the case of a successful enforcement action, advocate for the highest potential monetary award. Prior to receiving any monetary award, for eligibility, tax and other reasons, whistleblowers must disclose their identity to the SEC.