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SEC Chairman Says Quickness and Quality Can Result in Larger Rewards for SEC Whistleblowers

The amount of reward the Securities and Exchange Commission will give to whistleblowers will largely depend on the “timeliness and quality of a whistleblower’s assistance,” according to SEC Chairman Mary L. Schapiro.  Schapiro made the statement at a May 25, 2011 SEC open meeting discussing the agency’s new whistleblower program.

The SEC’s new whistleblower program was created to implement provisions in the Dodd-Frank Act that would incentivize those close to fraud to come forward and provide information to the agency.  “The new whistleblower program is a part of our effort to enhance the agency’s capacity to detect and prevent fraud,” Schapiro said.  “[The] proposed final rules build upon our efforts over the past two years and our experience with the Sarbanes-Oxley Act — an Act that made great strides in creating whistleblower protections and requiring internal reporting systems at public companies.  From that experience, we learned that despite Sarbanes-Oxley, too many people remain silent in the face of fraud.  Today’s rules are intended to break the silence of those who see a wrong.”

The awards range between 10% and 30% of the amount collected of the monetary sanctions imposed by the SEC.  Reporting a fraud promptly, with strong corroborating evidence, could significantly increase the dollar amount of a whistleblower bounty. 

In order to qualify for an award, whistleblowers must navigate their way through the process and comply with certain rules established by the SEC.  Specifically, the final rules of the SEC Whistleblower Program require that whistleblowers voluntarily provide information to the SEC; i.e., before the SEC asks the whistleblower for the information.  In addition, the information must be original (not already known by the SEC) and lead to a successful enforcement resulting in the SEC obtaining monetary sanctions exceeding $1 million.

Observers expect that whistleblower assistance will result in a record number of actions filed and sanctions collected.

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Milberg Tadler Phillips Grossman LLP
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