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SEC Adopts New 'Bounty Hunter' Rules Designed to Encourage Whistleblowers

By Darrick M. Mix and Michael E. Clark

The U.S. Securities and Exchange Commission (SEC) recently adopted “bounty hunter” whistleblower rules under section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that are likely to encourage employees of public companies to report potential violations of securities laws directly to the SEC, rather than in accordance with established internal company compliance and reporting procedures. In a controversial move, the SEC did not include a provision in the final rules that would require whistleblowers to first report a claim pursuant to internal company procedures prior to being eligible for a bounty.

The final rules create a whistleblower program that rewards individuals who provide the agency with tips that lead to successful enforcement actions. The SEC will pay awards to whistleblowers who voluntarily provide the SEC with original information about a violation of securities laws that leads to a successful enforcement action brought by the SEC that results in monetary sanctions exceeding $1 million. The size of the bounty payments may range from 10% to 30% of the total monetary sanctions collected.

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