The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), signed into law by President Obama on July 21, 2010, created a whistleblower program that will reward and protect from employer retaliation individuals who report violations of federal securities laws to the Securities and Exchange Commission. On May 25, 2011, the SEC adopted rules to implement the program, which became effective on Aug. 12, 2011.
The new whistleblower program is designed to motivate company insiders to report possible violations of federal securities laws directly to the SEC rather than through a company’s internal compliance department. In effect, the whistleblower program will be competing with internal compliance processes to collect inside information on corporate misconduct. Fortunately, the SEC added a provision in the final rules that provides incentives for employees to report whistleblower information to their internal compliance departments; unfortunately, the rules do not require employees to use their companies’ internal processes to qualify for an award.
