SEC Office of Compliance Inspections and Examinations Issues Risk Alert on Whistleblower Rule Compliance


On October 24, Staff in the Office of Compliance Inspections and Examinations (the “Staff”) issued a National Exam Program Risk Alert announcing that it is examining registered investment advisers and registered broker-dealers compliance with key whistleblower provisions arising out of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Commission recently has brought several enforcement actions charging violations of Rule 21F-17 of the Commission’s whistleblower regulations.


The Staff now is routinely reviewing, among other things, compliance manuals, codes of ethics, employment agreements, and severance agreements to determine whether provisions in those documents pertaining to confidentiality of information and reporting of possible securities law violations may raise concerns under Rule 21F-17.
Section 21F of the Securities Exchange Act of 1934 was added by the Dodd-Frank Act.  To implement Section 21F, among other things, the Commission adopted Rule 21F-173 thereunder which provides that “no person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”


The Staff highlighted that “Recent enforcement actions have identified certain provisions of confidentiality or other agreements required by employers as contributing to violations of Rule 21F-17 because they contained language that, by itself or under the circumstances in which the agreements were used, impeded employees and former employees from communicating with the Commission concerning possible securities law violations. This potential chilling effect can be especially pronounced when such documents (e.g., severance agreements) provide that an employee may forfeit all benefits if he or she violates any terms of the agreement.” Alert.

CFTC Seeks Public Comment on Proposed Whistleblower Rule Amendments


On September 1, 2016, the U.S. Commodity Futures Trading Commission (“CFTC”) announced that it is “requesting public comment on proposed amendments to the Whistleblower Rules found in Part 165 of the CFTC’s regulations.” The amendments would, among other things, “enhance the process for reviewing whistleblower claims and make related changes to clarify staff authority to administer the whistleblower program.” Comments are due on or before September 29, 2016. Press release.

CFTC to Issue Award of Approximately $290,000 to Whistleblowers

On September 29, the U.S. Commodity Futures Trading Commission announced that it would issue an award of approximately $290,000 to whistleblowers for providing valuable information about violations of the Commodity Exchange Act.  The award is provided if reporting leads to an enforcement action that results in more than $1 million in monetary sanctions.  Press Release.

SEC Issues Huge Bounty Award of $14 Million to Whistleblower under Dodd-Frank

On October 1, the SEC announced that it is issuing a whistleblower award of over $14 million to a whistleblower who provided information that resulted in the recovery of investor funds.  The significant whistleblower award comes after many critics have questioned the success of the SEC’s whistleblower award program which, to date, has only issued two much smaller awards since the program’s inception in 2011.  The first award payment was issued in August 2012 for approximately $50,000.  The second award, paid to three whistleblowers for information that stopped a sham hedge fund, has paid out approximately $25,000 with an expected total payout of $125,000.  For more information and to read our Securities Litigation blog, please click hereFirst Award PaymentSecond Award Payment.

First Report of SEC’s Whistleblower Office Contains Some Surprises

On November 16, 2011, the SEC’s Office of the Whistleblower released its first annual report to Congress, as required by section 924(d) of the Dodd-Frank Act. The report only includes information about tips received after the final rules implementing the program became effective on August 12, 2011. As a result, it only includes seven weeks of data. Still, the information provides useful insights into the number and types of whistleblower complaints being received and some insights into the Office’s staffing and activities to date. Click here to read more.

Dodd-Frank’s SEC Whistleblower Rules Take Effect

On August 12, 2011, the SEC’s Dodd-Frank whistleblower rules became effective, establishing the procedures for whistleblowers reporting violations to the SEC under section 922 of the Dodd-Frank Act to receive a bounty of between 10 and 30 percent of sanctions the SEC collects in successful actions resulting in sanctions of over $1 million. For a complete summary of the updates, please click here.


SEC Whistleblower Program Now Effective

On August 12, the SEC whistleblower program, established pursuant to Section 922 of the Dodd-Frank Act, became effective. In connection with the commencement of the program, the SEC launched a new website for whistleblowers to report violations of the federal securities laws and apply for financial awards. SEC Release. SEC Whistleblower Website.

CFTC Whistleblower Incentives and Protection

On August 4, pursuant to Section 748 of the Dodd-Frank Act, the CFTC adopted final rules concerning commodity whistleblower incentives and protection. The CFTC will pay awards to whistleblowers who provide original information leading to the successful enforcement of a CFTC action resulting in monetary sanctions exceeding $1 million. The CFTC will determine the amount of the award (10 to 30 percent of the collected sanctions) based upon the following criteria: (i) significance of information; (ii) degree of assistance provided in support of a covered judicial or administrative action; (iii) programmatic interest; (iv) and any other criteria other than the balance of the CFTC Customer Protection Fund. The final rules will be effective 60 days after publication in the Federal Register. CFTC Release. CFTC Q&A.

SEC Whistleblower Program

On May 25, pursuant to Section 922 of the Dodd-Frank Act, the SEC adopted final rules implementing a new whistleblower program. Under the program, the SEC will reward whistleblowers who voluntarily provide original information concerning violations of the U.S. securities laws. In order to qualify for a reward, such information must lead to a successful enforcement action resulting in a monetary sanction exceeding $1 million. The final rules will be effective 60 days after they are submitted to Congress or published in the Federal Register. SEC Release. Final Rules.