Understanding the Information Required for Whistleblower Awards

The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) provided for the possibility of significant awards for individuals who provide information of corporate misconduct. While these whistleblower awards can be significant, they are also subject to very specific requirements. If the information provided does not meet these requirements, an individual providing that information will not be eligible for an award.

Requirements

Under the Dodd-Frank Act, to be eligible for a whistleblower award, the information provided to the Securities and Exchange Commission (SEC) must be original, which is defined as being:

  1. Derived from the whistleblower’s independent knowledge or independent analysis;
  2. Not already known by the SEC from any other source;
  3. Not exclusively derived from an allegation made in a judicial or administrative hearing; and
  4. Provided to the SEC for the first time after July 21, 2010, which is the date of the enactment of the Dodd-Frank Act.

Independent knowledge is defined as factual information that is not derived from publicly available sources that is gained from the whistleblower’s experiences, communications and observations in his or her business or social interactions. Independent analysis means the whistleblower’s own analysis, whether done alone or in combination with other people. While both independent knowledge and independent analysis are defined under the Dodd-Frank Act, what these terms mean are still subject to judicial interpretation.

The SEC will not consider information provided to be derived from a whistleblower’s independent knowledge or analysis under the following circumstances:

  1. If the information obtained by the whistleblower was through a communication subject to the attorney-client privilege;
  2. If the information obtained by the whistleblower was in connection with the legal representation of a client on whose behalf the whistleblower is providing services and the whistleblower attempts to use the information for his or her own benefit;
  3. If the information was obtained as a result of the whistleblower being an officer, director, trustee, or partner of an entity and an employee informed the whistleblower of the allegations of misconduct;
  4. If the information was obtained as a result of the whistleblower being in a position whose primary duties involved compliance or internal audit responsibilities;
  5. If the information was obtained as a result of the whistleblower being employed by a firm retained to conduct an inquiry or investigation into possible violations of the law;
  6. If the information was obtained as a result of the whistleblower’s employment at a public accounting firm and that information was obtained through the performance of the work of an independent accountant; or
  7. If the whistleblower obtained the information by means that constitute a violation of federal or state criminal law.
Investor Protection

The awards for whistleblowers are intended to provide incentive for individuals with knowledge of corporate misconduct to communicate that information. By providing this information to the SEC, innocent investors can be protected. If you would like more information about the whistleblower program or the protections afforded to investors, contact experienced securities law attorneys at the Silver Law Group today.

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