Whistleblower Provisions Regulation

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Gavel.png FINAL RULE: The CFTC final rule was issued at its August 4, 2011 open meeting. The SEC final rule was issued at its May 25, 2011 open meeting.
Dodd-Frank Timeline, Whistleblower Provisions, CFTC
Proposal Date Final Rule Issue Effective Date
December 6, 2010 August 4, 2011 October 24, 2011
Dodd-Frank Timeline, Whistleblower Provisions of Secton 21F of the Securities Exchange Act of 1934
Comment Deadline Final Rule Issue Effective Date
December 17, 2010 June 13, 2011 August 12, 2011

At an open meeting on August 4, 2011, the CFTC approved its final rule on its whistleblower program. The rule maintains the “discretionary power” of the Commission with regard to the amount awarded to informants.

At an open meeting on May 25, 2011, the SEC issued its final rule under which the whistleblower, in order to be eligible, must "voluntarily provide the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million.”[1]

On November 11, 2011, the first batch of official whistleblower awards were published to an SEC website.[2] In the early days of the program, it was estimated that an average of seven whistleblower claims were being filed with the SEC every day.[3]

On May 20, 2014, the CFTC announced its first award under the CFTC Whistleblower Program. According to the commission, the whistleblower supplied "specific, timely and credible information that led to the Commission bringing important enforcement actions," and was awarded $240,000.[4]

SEC Final Rule

Summary points:

  • "The final rules lengthen the period of time in which a whistleblower can wait before coming to the SEC, after reporting internally. Now whistleblowers will be able to get credit for the original date they reported to their company so long as they notify the SEC within 120 days.
  • The final rules now make clear that the Commission — when considering the amount of an award — will consider how much a whistleblower has participated in or interfered with the internal compliance process.
  • The final rules would give credit to a whistleblower whose company passes the information along to the Commission, even if the whistleblower does not. This could create an opportunity for a whistleblower to obtain an award through internal reporting where the whistleblower might not otherwise have qualified for an award because the information was not sufficiently specific and credible."
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Link to Fact Sheet
Link to Chairman Schapiro's Statement

CFTC Final Rule

Summary points:

  • Whistleblower award amount will be between 10 and 30 percent of collected sanctions; CFTC may exercise discretion regarding the award. Awards will be denied to certain government employees and others who are "statutorially ineligible."
  • A whistleblower may appeal certain Commission decisions including award denials and amounts to the appropriate U.S. Circuit Courts of Appeal.
  • Whistleblowers may receive awards based on violations prior to the Dodd-Frank Act, and before the rulemaking's effective date, provided they comply with the commission's procedures within 120 days.
  • Ineligibility to receive a whistleblower award from the Commission award does not preclude application of anti-retaliation protections. Whistleblowers are protected from retaliation regardless of any award determination.
  • In response to public comments, the final rule provides additional incentives for internal reporting by whistleblowers. Final rules also include minor changes to "ensure consistency and promote harmonization" with the SEC's whisleblower provisions.[5]
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Background for SEC and CFTC Whistleblower Rules

At its November 10, 2010 open meeting, the CFTC approved a rule proposal regarding the establishment of whistleblower incentives and protection.[6] Also, the Securities and Exchange Commission proposed its whistleblower program on November 3, 2010 to reward individuals that provide the agency with tips that lead to successful enforcement actions.[7]

The Dodd-Frank Act directs the two commissions to issue final rules regarding the issuance of monetary rewards to individuals who provide information that leads to fines or sanctions in excess of $1 million. The act gives discretion as to the amount, only stating that it could be "between 10 and 30 percent of the sanctions collected."

CFTC Rule Proposal

The CFTC Whistleblower rule proposal maintains the "discretionary power" of the Commission with regard to the amount awarded to informants. Criteria used in the determination include:

  • Significance of the information;
  • Degree of assistance provided;
  • Programmatic interest; and
  • Other criteria.

Awards may be denied to certain government employees and other persons deemed "statutorily ineligible."

Also included in the proposal are provisions for protection of whistleblowers from employer retaliation.

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SEC Rule Proposal

Under the SEC proposed rule, a whisteblower must voluntarily provide the SEC with original information about a violation of federal securities laws, which leads to a successful enforcement by the agency where the SEC obtains monetary sanctions totaling more than $1 million.

The following must occur in order for a whistleblower to qualify for an award:

  • 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.
  • 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.
  • A whistleblower’s information can be deemed to have led to successful enforcement in two circumstances:
  1. if the information results in a new examination or investigation being opened and significantly contributes to the success of a resulting enforcement action; or
  2. if the conduct was already under investigation when the information was submitted, but the information is essential to the success of the action and would not have otherwise been obtained.
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References

  1. SEC Adopts Rules to Establish Whistleblower Program. SEC. Retrieved on May 26, 2011.
  2. Claim an Award. SEC. Retrieved on November 11, 2011.
  3. Whistle-Blowers, Over 100 Per Month, Seek SEC Bounties. Bloomberg. Retrieved on November 21, 2011.
  4. CFTC Issues First Whistleblower Award. CFTC. Retrieved on May 20, 2014.
  5. Final Regulations Regarding Whistleblower Incentives and Protection. CFTC. Retrieved on August 4, 2011.
  6. Open Meeting on Fourth Series of Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on March 7, 2011.
  7. http://www.sec.gov/news/press/2010/2010-213.htm. SEC. Retrieved on April 27, 2011.

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