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Advising a Whistleblower After Dodd-Frank

By Tammy Marzigliano and Jordan A. Thomas

On July 21, 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, the most significant financial reform effort since the Great Depression. 17 CFR ' 240.21F-1, et seq. Part of that legislation directed the Securities and Exchange Commission (SEC) to establish a whistleblower program that pays monetary rewards to eligible whistleblowers, and prohibits work-place retaliation by employers against whistleblowers. The program arose in response to a long series of corporate scandals that defrauded countless investors and shook investor confidence. To become eligible for the monetary reward, the whistleblower must voluntarily provide the SEC with original information about a violation of the federal securities laws that leads to a successful enforcement action in which the SEC obtains monetary sanctions over $1 million. Whistleblowers who provide such information are eligible for an award of 10% to 30% of the monetary sanctions.

The potential for this type of monetary reward is revolutionary in securities enforcement, and since the enactment of the whistleblower program, the offer of monetary rewards has garnered the lions share of attention from commentators. But the robust anti-retaliation provisions contained in the guidelines are just as ground-breaking and equally important. These provisions prohibit employers from retaliating against individuals who provide the SEC with information about possible federal securities law violations, and victims of such retaliation are granted an independent cause of action with significant potential remedies. In addition, whistleblowers are permitted to report securities violations anonymously if they are represented by counsel.

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