August 5, 2010

Although the SEC has been accepting whistleblower claims for nearly one year since the passage of the Dodd-Frank Financial reform laws, the SEC has taken two big steps recently to enhance the whistleblower program.  In May, the SEC approved comprehensive regulations that, in many respects, were favorable to whistleblower claims.  Those regulations go into effect on August 12, 2011.  Of primary importance, the SEC did away with a provision of the proposed rules that would have required whistleblowers to report their claims internally within the company.  In a discussion of the proposed rules, Whistleblower office director Sean McKessy explained that in the back of his mind when reviewing the proposed rules was the forty percent of all violations that go undetected.  Now, under the proposed rules, a whistleblower can choose to report internally before making a claim with the SEC, and such actions may enhance any award to the whistleblower.  Or, a whistleblower can make a claim directly with the SEC and may submit tips anonymously through counsel.

The other favorable development involves funding for the SEC Whistleblower program.  At the time the new rules were proposed last November, the SEC had intimated that it might defer establishing the whistleblower division due to lack of funding.  However, in February, the SEC hired McKessy, a veteran of the SEC to direct the office.  Later, the SEC announced that it would begin staffing the whistleblower division, and fund the SEC Investor Protection Fund, required by Dodd-Frank to pay whistleblower claims.  These steps were encouraging because it demonstrated a commitment to the whistleblower program that seemed, up to that point, to be lacking.

Because of the new rules, the SEC estimates receiving over 30,000 tips each year.  The SEC has recently established an online form for submitting tips.  McKessy also explained that successful tips should be “specific, timely and credible” with detailed information about dates, names, documents and witnesses.

Pietragallo Gordon Alfano Bosick & Raspanti has over 25 years of experience prosecuting cases under the False Claims Act, upon which the SEC whistleblower law is modeled, and with submitting administrative whistleblower claims such as IRS and SEC whistleblower claims.  If you have a whistleblower claim, whether under the False Claims Act, or the SEC or IRS whistleblower programs, we will be happy to speak with you further.