On May 25, 2011, the Securities and Exchange Commission (“SEC”) adopted rules to establish a new whistleblower program, implemented under Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Act” or “Dodd-Frank Act”).  The Dodd-Frank Act was enacted by Congress on July 21, 2010 to promote financial stability by improving accountability and transparency within the financial industry and to protect consumers from abusive financial services practices. To help reach this goal, the Act contains powerful incentives for whistleblowers to come forward with information to the SEC.

Section 922 of the Act, entitled “Whistleblower Protection,” is primarily intended to reward individuals who provide the SEC agency with high-quality tips that lead to successful enforcement actions.  Section 922 defines a “whistleblower” as “any individual who provides…information relating to a violation of the securities laws to the [SEC].”  The Act mandates that in any judicial, administrative or related action, the SEC shall pay an award to any whistleblower who “voluntarily provided original information to the [SEC] that led to the successful enforcement of the covered judicial, administrative or related action” in an amount equal to between 10% and 30% of what has been collected if the monetary sanctions imposed upon the wrongful party exceed $1,000,000.00.  “Original information” is defined as information that is derived from the independent knowledge or analysis of the whistleblower and that is not known to the SEC from any other source.  The total amount of the award is within the discretion of the SEC based upon a number of criteria set forth in Section 922.  But the whistleblower is entitled to no less than 10% of the amount collected.

Moreover, for those whistleblowers who do come forward with information, Section 922 makes clear that “[n]o employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of” the whistleblower’s submission of information to the SEC.  If a whistleblower feels that he or she has been discharged or discriminated against, Section 922 provides for a private cause of action against the employer which includes reinstatement, two times the back pay, attorneys’ fees and costs.

To add to whistleblowers’ incentives, Section 922 explicitly provides that “[a]ny whistleblower who makes a claim for an award…may be represented by counsel.”  Since the enactment of the Dodd-Frank Act, law firms around the country have begun establishing “Section 922” practices aimed at assisting individuals in providing information to the SEC.

During the SEC’s May 25, 2011 open meeting, SEC Chairman Mary L. Schapiro emphasized the impact of Section 922 and the need for the new whistleblower program, noting that “while the SEC has a history of receiving a high volume of tips and complaints, the quality of the tips we have received has been better since Dodd-Frank became law. We expect this trend to continue, and these final rules map out simplified and transparent procedures for whistleblowers to provide us critical information.”

A summary of Section 922 of the Dodd-Frank Act can be found here.