Co-authored by Steven G. Eckhaus and Evan A. Belosa

Among the myriad provisions of the pending financial reform bill is the creation of a viable whistleblower system under which informants who report securities laws violations to the Securities and Exchange Commission will be provided with monetary rewards. The plan is based in part on the success of the Internal Revenue Service’s similar whistleblower program.

Under proposed Section 922 of the Restoring American Financial Stability Act of 2010 (the Senate Bill), the SEC will be required to pay a reward to individuals who provide “original information” to the SEC that results in monetary sanctions to the violating party exceeding $1 million. The award can range from 10% to 30% of the amount that is recouped, with the actual amount of the award at the discretion of the SEC. Section 922 prohibits the SEC from providing an award to a whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower provided information; who gains the information from a government investigation, report or audit; who fails to submit information to the SEC as required by an SEC rule; or who is an employee of the U.S. Department of Justice or a regulatory agency, a self-regulatory organization, the Public Company Accounting Oversight Board or a law enforcement organization.

The Senate Bill would explicitly provide for whistleblower retaliation protection, so as to prevent employers from firing or otherwise discriminating against those taking advantage of this law. Section 922 creates a prohibition against retaliation and a private right of action for employees who have suffered retaliation.

Section 922 of the Senate Bill closely resembles Section 7203 of the House of Representatives’ earlier Wall Street Reform and Consumer Protection Act of 2009, H.R. 4173 (the House Bill). The key difference, however, is that the Senate Bill provides for a 10% floor on whistleblowing awards, while the House Bill provides for no floor.

Reconciliation of the House and Senate Bills is underway, with debate on these sections scheduled for next week.

The Senate Bill can be accessed here.
HR 4173 can be accessed here.