The SEC’s whistleblower program, which was implemented pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requires the SEC to pay awards to whistleblowers who voluntarily provide the SEC with original information about a violation of the federal securities laws that leads to a successful enforcement action resulting in monetary sanctions exceeding $1 million. If these requirements are met, the whistleblower is entitled to an award of between 10 and 30 percent of the total monetary sanctions collected in the SEC action and certain related actions.
Because this award reinforces the great monetary incentives of the SEC’s whistleblower program, companies would be wise to take certain actions to reduce their risk of becoming subject to a whistleblower report. Most importantly, companies should review and, if appropriate, enhance their internal controls. Robust internal financial and disclosure control processes can prevent many possible securities law violations from occurring, and a strong internal audit function not only can deter violations, but also can ferret out and address problems before they escalate. Companies should also review and, if appropriate, update their compliance program. A company’s compliance program should educate employees on their reporting obligations and require them to promptly report suspected violations internally. Hotlines for anonymous reporting should also be easy to use and function properly.