IMPACT OF THE DODD-FRANK WHISTLEBLOWER PROVISIONS ON DUE DILIGENCE AND INTERNAL INVESTIGATIONS FOR COMPANIES

On 21 July 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in response to the financial crisis which established a new whistleblower program at the Securities and Exchange Commission (SEC). On 25 May 2011, the SEC adopted rules to implement the new whistleblower program. The Dodd-Frank Act provides for the payment of substantial financial awards to whistleblowers who voluntarily provide the SEC with information about violations of federal securities laws that results in monetary sanctions of $1m or more.

To obtain the benefits of the whistleblower award system, a whistleblower must provide ‘original information’, not known to the SEC. This information must originate from the whistleblower’s own information or analysis, and not ‘exclusively derived’ from an allegation made in an official hearing, government report, hearing, audit or investigation or in the news media. However, the fact that information was provided to the SEC prior to the Dodd-Frank Act’s effective date will not necessarily preclude the information from being considered ‘original information’ under the statute. In addition, the Dodd-Frank Act may apply to securities violations even if they occurred prior to the effective date of the statute.

The whistleblower must be an individual person. A company or other entity is not eligible to be a whistleblower. They may report information anonymously, but only if they are represented by counsel. Certain categories of individuals are excluded from receiving monetary awards as a whistleblower. These are officers, directors, trustees or partners who receive information about a company’s alleged violations from a company employee or from the company’s internal compliance processes as well as attorneys, compliance personnel, accountants, investigators and auditors who receive information in the context of a legal representation or in performing compliance or audit duties or a legal investigation.

Jan-Mar 2013 Issue

Berkeley Research Group