SEC Proposes Dodd-Frank Whistleblower Rules: SEC Proposes Rules for Implementing the Whistleblower Protection and Award Provisions of the Dodd-Frank Act that Leave Open Issues of Concern for Employers

Sullivan & Cromwell LLP - November 12, 2010

Last week, the Securities Exchange Commission (“SEC”) proposed rules under a new program that encourages whistleblowing by providing for mandatory cash rewards to persons who report information about violations of the securities laws (“Whistleblower Program”).  As we reported in our publication of August 5, 2010, the whistleblower reward program is required under Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The proposals address some, but not all, of the concerns raised by employers in connection with the program.  In particular, although the proposed rules include some structural safeguards to allow employees to first report information as part of a company’s internal compliance process, the proposed rules ultimately permit employees to be eligible for the mandatory rewards even if they bypass that internal process.  In addition, employees who learn of information as part of a company’s internal compliance process may themselves be eligible for rewards if they report the information to the SEC after the company fails to act in “good faith” or to disclose the information to the SEC within a reasonable period of time. The SEC is seeking public comment on these proposals through December 17, 2010.