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Whistleblower Provision

Whistleblower Provision

Definition

A key provision within the Dodd-Frank Act that requires the Securities and Exchange Commission (SEC) to award whistleblowers a payment equal to 10 to 30 percent of the proceeds (recovered from corporations that violate U.S. securities laws) based on information provided by the whistleblower. Significantly, the SEC will not provide awards for such information unless it produces actual monetary recoveries.

Where the SEC recovers at least $1 million, a reward to eligible whistleblowers must be between 10 and 30 percent of the aggregate monetary penalties obtained by the SEC and other U.S. governmental entities, in any related actions.

The SEC retains broad discretion in calculating the actual amount of the award. The factors that are considered in arriving at the amount include the significance of the information provided; the extent of the assistance provided; whether the whistleblower made use of a company's internal compliance function; whether the individual put himself/herself in danger; whether the whistleblower encouraged others to assist the SEC; and the extent to which the whistleblower participated in the offense.

The whistleblower provision also includes a number of so-called anti-retaliation measures that are designed to protect employees (and others) who report various types of corporate malfeasance.

In addition to the heightened exposures created by whistleblowers' reports to the SEC, corporate directors and officers are also likely to face more numerous securities class action claims as a result of the whistleblower provision. This is because plaintiffs' attorneys are expected to "harvest" a number of the more egregious tips provided by whistleblowers and then use the information associated with such tips as the basis for bringing securities class action claims.

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