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On May 25, 2011, the US Securities and Exchange Commission ("SEC") by a divided vote of 3-2 adopted final rules implementing the controversial whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act").¹ The Dodd-Frank Act amended the Securities Exchange Act of 1934 to add Section 21F, which requires the SEC to pay whistleblowers awards (subject to limitations and conditions) of 10% to 30% of any sanctions collected when they voluntarily provide the SEC with original information about a violation of the US securities laws that leads to a successful SEC enforcement action resulting in sanctions exceeding $1 million. The final rules define eligibility for an award and set forth the procedures whistleblowers must follow to be eligible for an award.

The rules create significant incentives for whistleblowers to report suspected securities law violations to the SEC and usher in a new era of increased regulatory risk for companies. Significantly, the rules do not require the whistleblower first to report the matter to the company's internal compliance apparatus. The rules place a premium on prevention, and indirectly incentivize companies to voluntarily disclose issues earlier and more often.

¹ "SEC Adopts Rules to Establish Whistleblower Program," SEC Press Release (May 25, 2011), available at: http://sec.gov/news/press/2011/2011-116.htm;  Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934, Release No. 34-64545 (May 25, 2011), available at: http://sec.gov/rules/final/2011/34-64545.pdf ("Adopting Release").

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