Whistleblower Provisions Randall J. Fons

• Pages: 167-172

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CHAPTER 10

Whistleblower Provisions

Randall J. Fons

The Securities and Exchange Commission (SEC) has had the authority to

pay bounties to whistleblowers reporting illegal insider trading since 1988,

when Congress passed the Securities Fraud Enforcement Act. Under what

was then Section 21A(e) of the Exchange Act, the SEC was authorized

to award a bounty to a person who provided information leading to the

recovery of a civil penalty from an insider trader, a tipper, or a control

person. However, that whistleblower program proved largely ineffective,

with few applications made by individuals seeking a bounty and even fewer

payments made under the program.1

In 2011, the SEC issued final rules establishing a new, broad-based

whistleblower program as required under Section 922 of the Dodd-Frank

Act. Dodd-Frank added Section 21F, entitled Securities Whistleblower

Incentives and Protection, to the Exchange Act. That section requires the

SEC to pay a bounty to one or more whistleblowers who voluntarily provide

original information that results in the successful prosecution of a federal

court or administrative action in which the SEC obtains monetary sanctions

over $1 million. Whistleblowers who provide information must receive a

1 U.S. Securities and Exchange Commission, Office of Inspector General, Office of Audits,

Assessment of the SEC’s Bounty Program (hereinafter Inspector General Report), Rep. No.474

at 5 (Mar. 29, 2010).

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