SEC Formally Establishes a Whistleblower Program


Advisers

On May 25, 2011, the SEC adopted Rule 21F (the Rule) under the Securities Exchange Act of 1934, formally establishing a Whistleblower Program. The Rule was first proposed in November and adopted with substantial changes.

Under the Whistleblower Program, the SEC is required to pay whistleblowers who, alone or jointly with others, voluntarily provide the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million. The required payment must be between 10% and 30% of the sanctions collected.

The Rule release goes to great length defining key terms, outlining individuals excluded from award eligibility and detailing criteria the SEC will consider when determining the award. In addition, the Rule provides whistleblowers with numerous protections against retaliation. However, the Rule does not impose any new reporting or compliance requirements on advisers.

Though not required to take any affirmative action, advisers should strongly consider adopting an internal whistleblower program, if not already in place. The program should include provisions that encourage and emphasize the importance of internal reporting, and adopt an effective internal investigation process. Effective internal investigation is important as compliance and audit personnel, though initially excluded, may qualify for award eligibility 120 days after first internally reporting. Advisers should also consider adopting written policies to ensure compliance with the anti-retaliation protections afforded whistleblowers, and training management on how to comply.

If you wish to learn more regarding how the Whistleblower Rule may affect your compliance program, please contact us.

 

 

 

 

 

 

 

   
 
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