Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

We received favorable feedback on our article “Test Your Knowledge of the Whistleblower Rules,” so we thought a continuation would be appropriate.  Some specific factual questions and responses are set forth below.


1.         HighTech Corp. read the whistleblower rules carefully and noted that they do not specifically prohibit employees from waiving the protection of the anti-retaliation provisions of the Dodd-Frank Act.  HighTech therefore requires new employees to sign a waiver of those provisions.  Is it effective?


Not according to the SEC.  Since the whistleblower provisions amended the Securities Exchange Act, the anti-waiver provisions of Section 29(a) of the Exchange Act make such waivers ineffective.


2.         HighTech is conducting an internal investigation regarding potential violations of securities law although it has not yet been contacted by the SEC.  HighTech’s counsel interviews HighTech’s employee, Joe.  Joe figures something is up and immediately reports the same information to the SEC.  Is Joe a whistleblower?


Yes, Joe’s submission is considered “voluntary.”  See pages 33 to 34 of the adopting release.


3.         Mary and Julie are both employees of HighTech.  Mary communicates specific information about a securities law violation to Julie.  Mary and Julie had nothing to with the violation, and Julie did nothing to investigate or substantiate the information.  Julie reports the information to the SEC.  Is Julie a whistleblower?


Yes, assuming Julie is not Mary’s supervisor or does not have a compliance related function.  First hand knowledge is not required to have “independent knowledge” to be a whistleblower.  Page 47 of the adopting release states individuals can report information learned through their “observations, relationships or personal diligence.”


4.         Assume Mary later reports the information to the SEC.  Is Mary a whistleblower?


Yes.  Mary is the “original source” of the information.  Julie may still be eligible.  Julie may also have an advantage over Mary.  If Julie’s submission caused the SEC to open an investigation, and if a successful enforcement action resulted, then Julie’s submission “led to” a successful action.  If Mary made her submission after the SEC had already opened an enforcement action, then she will have to show that the information significantly contributed to the success of the action.  See adopting release pages 85 to 86.


5.         Assume the same facts as above, except Julie is Mary’s supervisor.  Is Julie a whistleblower?


The proposed rules excluded anyone in a “supervisory” capacity from being a whistleblower but this provision was significantly narrowed.  See adopting release page 64 and page 69.  Barring nothing else, Julie probably qualifies unless she is “an officer, director, trustee or partner” of HighTech (page 70 of the adopting release) or unless her “principal duties involve compliance or internal audit” (page 72 of the adopting release).

6.         Joe is a disgruntled employee and hacks into his supervisor’s company e-mail account and learns information that HighTech is violating securities laws.  Joe reports the information to the SEC.  Is Joe a whistleblower?


Joe will not be a whistleblower if a domestic court determines that Joe obtained the information in violation of federal or state criminal law.  Otherwise, Joe apparently qualifies.  See adopting release page 80.


7.         Joe makes a valid whistleblower complaint regarding HighTech.  Joe works closely with the SEC staff during the investigation and believes he has satisfied all necessary requirements.  Joe later reads in the paper that HighTech agreed to pay over $1,000,000 to the SEC to satisfy related allegations.  Joe celebrates and goes out and buys a big house in anticipation of a check, but does nothing else.  Will Joe receive a check?


No.  The SEC is required to publish a Notice of Covered Action on its website regarding the final judgment, and Joe must submit form WB-APP within 90 days thereafter to be eligible for an award.


Check frequently for updates on the Dodd-Frank Act and other important securities law matters.

Leave a Reply

Your email address will not be published. Required fields are marked *