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In 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. At more than 2,000 pages, the Act was the most sweeping financial reform effort since the Great Depression. Sponsored by Senator Christopher Dodd and Representative Barney Frank in response to the 2008 financial crisis, the Act contains numerous provisions for regulating the financial markets, including additional regulatory and reporting requirements for market participants. Among its charges, Dodd-Frank established new government agencies such as the Consumer Financial Protection Bureau; eliminated the Office of Thrift Supervision; assigned new responsibilities to existing government agencies; crafted significant regulatory and reporting requirements for financial institutions; and required some agencies to launch ambitious bounty programs.
Included in its revolutionary investor protections initiatives, Dodd-Frank instructed the SEC to develop a bounty program in order to encourage whistleblowers to come forward with early and actionable intelligence about major securities violations. In its final permutation, the program has three key pillars: eligible whistleblowers receive significant monetary awards, employment protections, and have the ability to report anonymously. To qualify for an award, an individual or group of individuals must voluntarily provide the SEC with original information that leads to a successful enforcement action in which the SEC collects over $1 million in sanctions. Depending on various factors, whistleblower bounties range between 10-30% of collected sanctions, with the exact percentage at the agency’s discretion.
Days before the final rules were implemented in 2011, we predicted that some of the largest enforcement actions in history would originate from whistleblowers’ tips. We were spot on. The program has proven to be one of the most successful public-private partnerships in history. The Commission consistently reports increases in the volume and quality of tips, which originate from every state in the Union and more than 100 countries around the world. Remarkably, over the course of the decade after the Act was passed, the SEC paid out more than $500 million to eligible whistleblowers.
To read more about Dodd-Frank and the results of its SEC whistleblower program, check out this article, “Happy Anniversary, Dodd-Frank” in the New York Law Journal.