SEC encouraging more whistleblowing

The Securities and Exchange Commission (SEC) Whistleblower Program was created in Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2011.

The Dodd-Frank Act authorizes the SEC to make monetary awards to eligible individuals who "voluntarily provide original information that leads to successful Commission enforcement actions resulting in the imposition of monetary sanctions over $1 million, and certain related successful actions." Awards are required to be made in the amount of 10% to 30% of the monetary sanctions collected.

In addition, the Dodd-Frank Act directs the commission to establish a separate office within the commission to administer the whistleblower program. Because the final rules became effective Aug. 12, 2011, only seven weeks of whistleblower tip data is available for 2011.

The most common complaint categories were market manipulation (16.2%), corporate disclosures and financial statements (15.3%), and offering fraud (15.6%). The commission received whistleblower submissions from individuals in 37 states, as well as from several foreign countries, including China (10) and the United Kingdom (9).

The Dodd-Frank Act also sets out the procedures for applying for a whistleblower award. The award process begins following the entry of a final judgment or order for monetary sanctions that, alone or jointly with judgments or orders previously entered in the same action or an action based on the same nucleus of operative facts, exceeds $1 million.

Following the entry of such a judgment or order, the Office of the Whistleblower publishes a "Notice of Covered Action" on the commission's website at www.sec.gov. Once a Notice of Covered Action is posted, individuals have 90 calendar days to apply for an award by submitting a completed whistleblower award application, which is known as Form WBAPP, to the Office of the Whistleblower.

On Aug. 12, 2011, the Office of the Whistleblower posted "Notices of Covered Actions" for the 170 applicable enforcement judgments and orders issued from July 21, 2010, through July 31, 2011, that included the imposition of sanctions exceeding the statutory threshold of $1 million. Because the 90-day application period had not passed with respect to any Notices of Covered Actions as of the end of the fiscal year, applications for awards had not yet been processed. Accordingly, the commission did not pay any whistleblower awards during fiscal year 2011.