The Supreme Court, by unanimous decision, has held that “whistleblower” status under the 2010 Dodd-Frank Act, with its cash award and enhanced anti-retaliation benefits, is limited to individuals who report violations to the SEC and does not include people who internally report at a company but fail to report to the SEC. The decision is likely to increase call volume on the SEC’s whistleblower hotline, as well as costs and headaches for legal and compliance personnel at regulated companies.
Although an individual who reports internally (and not to the SEC) may still get the anti-retaliation benefits afforded under the 2002 Sarbanes-Oxley Act, that individual would not be entitled to the enhanced anti-retaliation benefits (e.g., double back pay) or the potential cash payout (10-30 percent of any SEC monetary penalties) under Dodd-Frank. Accordingly, individuals with information that could lead to SEC charges are now more likely to report out to the agency than try to resolve things internally.
Consequently, compliance and legal personnel at Pubcos, RIAs, and BDs should consider reviewing their policies and procedures to ensure that they are striking the correct balance between motivating employees to report potential problems internally and not limiting an employee’s ability to report out. This is especially true given the SEC’s focus (through enforcement actions) on entities who limit such reporting by requiring employees to sign restrictive confidentiality agreements that may have the effect of “chilling” an employee’s desire to report out.
Here is a link to the Supreme Court’s decision: