SEC Open Meeting, May 25, 2011
|Comment Deadline||Final Rule Issue||Effective Date|
|December 17, 2010||June 13, 2011||August 12, 2011|
The U.S. Securities and Exchange Commission (SEC) public meeting focused on the issuance of proposed rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act concerning:
- removing "felons and other 'bad actors'" in securities offerings from having any reliance on the safe harbor exemption rule in Securities Act registration regulation; and
- implementing Section 21F of the Securities Exchange Act of 1934 (“Securities Whistleblower Incentives and Protection"), in which the SEC will provide monetary awards to whistleblowers who provide original and reliable information to the Commission regarding violations of federal securities laws.
Final Rules for Implementing the Whistleblower Provisions of Section 21F of the Securities Act of 1934
Chairman Mary L. Schapiro; whose statements include:
- "The proposed rule would apply to a wide swath of persons, including issuers; directors and officers of the issuer; and, placement agents. Bad actor disqualification would apply if any of them has been convicted of — or is subject to court or administrative sanctions for — securities fraud or other specified violations."
- A request for comments regarding the possibility of extending the bad actor provision to all rules under Regulation D, not just Rule 506, and the potential costs and benefits of such an extension.
- A discussion of policy issues brought to the table by 240 comments and 1,300 form letters received in response to the proposed rule. These include:
- categories of persons;
- simpler procedure;
- whistleblower protections.
- Noting that in gathering comments and form letters, the SEC has created a rule that encourages whistleblowers to use internal compliance programs at their disposal, but also gives them the option to turn to the SEC.
- A discussion of the changes made in the final rules, most notably:
- the extension of time that a whistleblower is allowed to report a violation to the SEC and be considered for a reward;
- the SEC will consider internal compliance program interference or assistance when determining a financial reward; and
- if a company reports a violation gathered through an internal compliance program, that individual whistleblower will still have an opportunity to collect an award from the SEC.
Commissioner Luis A. Aguilar, whose statements include:
- Support for the bad actors provision in Rule 506.
- "Issuers who wish to rely on Rule 506 will have to scrub their offerings to make sure disqualified wrongdoers don’t have a second chance to engage in misconduct."
- An explanation of the need for more than one reporting avenue for whistleblowers.
Commissioner Troy A. Paredes, whose statements include:
- Declining support for the proposed bad actor provision due to reasons related to due process.
- "I believe that if the rule proposal before us were adopted, it would be impermissibly retroactive insofar as it changes the legal consequences of conduct that occurred before Dodd-Frank was enacted."
- Declining support for the whistleblower regulation because:
- the final rule does not mandate internal reporting; and
- the final rule could potentially cause the SEC to be overwhelmed by allegations.
Commissioner Elisse B. Walter, whose statements include:
- Support for the final whistleblower rule, with the following considerations:
- the final rule provides incentives for whistleblowers to use internal compliance programs; and
- the SEC should continue to take caution that it does not allow "culpable whistleblowers" to benefit from wrongdoing, as the final rule only allows for criminally convicted culpable persons to be ineligible for whistleblower awards.