What Corporate Managers Should Know About the SEC Whistleblower Rules

The SEC whistleblower rules, adopted by the SEC under Section 21F of the Securities Exchange Act pursuant to a mandate in the Dodd-Frank Wall Street Reform and Consumer Protection Act, provide for the payment of bounties or awards to whistleblowers. Under the SEC whistleblower rules, a bounty or award will be payable to eligible whistleblowers who provide “original information” concerning a violation of federal securities laws that leads to a successful enforcement action in a covered judicial or administrative action, or a “related action,” by the SEC or other specified agencies, resulting in monetary sanctions (fines or penalties, disgorgement, and/or interest on the disgorged amounts) of at least $1 million. Bounty awards are mandatory if the foregoing criteria are met. Eligible whistleblowers can receive between 10 – 30% of the monetary sanctions actually recovered.

For the most part, the SEC whistleblower rules deal with definitions and the operation of the rules, such as who is eligible be a whistleblower, what information qualifies as “original information,” what is meant by “leads to a successful enforcement action,” and procedures for applying for, and the awarding of, whistleblower bounties, as well as how to appeal such awards. These are matters that companies that may be the subject of whistleblower complaints largely have no control over and no role in.

But the whistleblower rules, and the enforcement actions they will lead to, will certainly have a significant impact on companies and there are a number of important issues regarding the SEC whistleblower rules and their implications that management should understand, and prepare for. Some of the more important issues are discussed below, including:

• Federal whistleblower bounty provisions are not new, but that can be very effective, and Section 21F and the SEC whistleblower rules are modeled after the successful IRS whistleblower program;
• Companies should assume that there will be a sharp increase in whistleblowing activity and perhaps in SEC enforcement cases;
• The SEC rules allowing whistleblowers to report on a dual track – reporting to the company and also to the SEC – will put significant pressure on companies in terms of investigating complaints of wrongdoing and self-reporting the results of those investigations;
• Internal reporting, even if it is part of dual-track reporting, can provide companies with significant benefits. If companies want to increase internal reporting they should understand and take into account the factors affecting the decision-making of potential whistleblowers; and
• Companies may not require employees to only report internally and not to report the SEC and may not require employees to waive the benefits of Section 21F and the whistleblower rules, including the anti-retaliation provisions.

1. Federal whistleblower rules are not new, but that can be very effective, and Section 21F and the SEC whistleblower rules are modeled after the successful IRS whistleblower program.

Federal laws providing bounties for whistleblowers are not new.

The federal False Claims Act, adopted during the Civil War, imposes liability of individuals and entities (typically federal contractors) who defraud the government. The False Claims Act includes a “qui tam” provision allowing persons unaffiliated with the government to file actions on behalf of the government and such whistleblowers can receive a portion (usually about 15 – 30%) of any recovered damages. Qui tam cases usually involve health care, military, or other government spending programs. The government recovered nearly $22 billion under the False Claims Act between 1987 (after the significant 1986 amendments) and 2008. [1] The 1986 amendments converted the qui tam action from a “weak form” bounty provision to a “strong form” bounty provision. Under weak form bounty provisions, awards are discretionary and the award or the range of the awards as a percentage of the government’s recoveries is sometimes low. Under strong form provisions, awards are mandatory and generally the award or the range of the awards as a percentage of the government’s recoveries is higher. The conversion of a bounty provision from a weak form to a strong form provision can have dramatic effects, as one article noted with respect to qui tam actions. “Both the number of qui tam actions filed and the amounts recovered have increased dramatically. In 1987, 33 qui tam cases were filed across the country and $200,000 was recovered by the Government. In 2000, 366 qui tam cases were filed and the Government recovered $1.2 billion dollars.” [2]

In addition, at the federal level, the IRS pays bounties to whistleblowers who report persons or entities who fail to pay the federal taxes they owe. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and certain other qualifications are met, the IRS will pay the whistleblower 15 – 30% of the amount collected. The IRS whistleblower bounty provision was converted from a weak form to a strong form provision in 2006 and the legislative history of Section 21F indicated that the conversion “reinvigorated” the IRS program. [3]

The SEC whistleblower program is a strong-form bounty provision.

The SEC has long been able to seek monetary sanctions for violations of securities laws. In fiscal 2009 and 2010, the amounts of monetary sanctions ordered in SEC proceedings were $2.4 billion and $2.8 billion and the amounts collected were $1.6 and $1.7 billion. [4]

Even if the whistleblower rules do not result in an increase in ordered or collected amounts (but the rules are likely to result in a significant increase), the lure of whistleblower bounties is sure to make whistleblowing under the new rules very attractive.

What is new about the SEC whistleblower program is that it is the first program to do all of the following:

• Paying bounties for reporting violations of federal securities laws;
• Paying bounties where the monetary sanctions imposed do not represent damages suffered by the federal government; and
• Making the payment of bounties mandatory where the eligibility criteria are met. [5]

2. Companies should assume that there will be a sharp increase in whistleblowing activity and perhaps in SEC enforcement cases.

The SEC enforcement program has historically been very reliant on tips and information from third parties, including other federal government agencies, state and foreign government agencies, self-regulatory organizations, and private parties. There is no information as to the number of tips that the SEC receives annually, but the SEC has stated that it receives a “high volume” of tips. [6] According to the SEC’s 2010 Report, in fiscal 2010, only 21.9% of SEC investigations were based on internally-generated “tips or prospects” for investigations. [7] Such information was often identified during the course of SEC examinations, analysis of data, disclosure reviews, or other activities. So 78.1% of investigations in fiscal 2010 resulted from information provided by third parties, including government agencies and individuals. The SEC has not reported the percentage of tips that have come from individuals. The SEC whistleblower rules are an attempt to encourage private parties to come forward with information that they may not otherwise has reported to the SEC or internally.

In its release adopting the SEC whistleblower rules, the SEC estimates that it its whistleblower program will receive about 30,000 “tips” concerning alleged violations of federal securities laws each year. [8] A person submitting a “tip” who wishes to be eligible for an award under the whistleblower program must also provide additional information relevant to such eligibility (“Eligibility Information”). The SEC estimates that it will receive Eligibility Information in roughly 50% of the instances were a tip is received; that is an estimated 15,000 instances per year. [9] 15,000 instances is equal to 60 each business day! (Note that Eligibility Information is submitted before it is known whether the SEC will investigate or bring an enforcement action, much less whether there will be monetary sanctions assessed or whether such monetary sanctions will be in excess of $1 million.) Presumably, most persons submitting Eligibility Information must have made at least a minimal assessment about the likelihood of the commencement of an enforcement action and the likelihood of collecting monetary sanctions in excess of $1 million. After all, half of those submitting tips do not provide Eligibility Information, which suggests that they do not believe that if there is an enforcement proceeding, there is a reasonable chance that monetary sanctions in excess of $1 million will be ordered. Even if the 15,000 instances in which Eligibility Information is submitted are discounted for (i) reports of wrongdoing that would have been made even if there were no bounty program, (ii) reports that do not relate to violations of securities laws or where the activities complained of do not constitute violations, (iii) reports that are frivolous or false, or (iv) meritorious reports that have little or no chance of generating monetary sanctions in excess if $1 million, it appears likely that there will be a very significant increase in the number of whistleblower tips that may concern serious violations of federal securities laws and that the SEC whistleblowing program will be very, very busy.

The likely results of the SEC whistleblower program on the number of tips that the SEC will receive is thought to be similar to the results for the number of tips the IRS received after Congress revamped the IRS whistleblower program in 2006. Congress consciously modeled the SEC whistleblower program after the IRS whistleblower program, as it was revamped in 2006. [10] Prior to the revamping, awards to whistleblowers were not mandatory and the IRS had discretion as to whether to pay such awards. The amounts of awards that were paid equaled 1%, 10%, or 15% of the proceeds. The introduction of mandatory minimum awards and increased awards was a “critical component” of the revamped IRS Whistleblower Program and “reinvigorated the earlier, largely ineffective, IRS Whistleblower Program” [11] and the number of IRS whistleblower tips increased dramatically.

Will the increase in tips result in an increase in enforcement actions? To start to answer this question, we consider trends in enforcement actions in light of the number of tips that the SEC expects to receive.

The table below reflects dispositions of SEC enforcement actions in 2011 from January 1 through May 16, as reflected in the SEC’s Litigation Releases and Administrative Proceeding Orders, [12] The table reflects the percentage of cases in which specified monetary sanctions (fines or penalties, disgorgement, and interest) were ordered. The table reflects dispositions for only a short period of time and may not be representative of the number, subject matter, or monetary sanctions of dispositions over a longer period of time, but it is nevertheless believed to a useful indicator of at least general trends in dispositions.

2011 – Final Dispositions of SEC Actions

The percentage of cases resulting in monetary sanctions in excess of $1 million (45%) is likely to make whistleblowing attractive to potential whistleblowers and to lawyers representing whistleblowers.

The following table sets forth information as to monetary sanctions in enforcement proceedings by the type of violation of federal securities laws. The SEC does not categorize enforcement actions in this way and the classifications are somewhat arbitrary. Some enforcement actions could fall into more than one category and the table reflects our judgment as to which category is most appropriate. It excludes enforcement proceedings relating to violations of broker-dealer or investment adviser and certain other categories and includes those believed to be of interest to corporate managers. The table reflects dispositions for only a short period of time and may not be representative of the number, subject matter, or monetary sanctions of dispositions over a longer period of time, but it is nevertheless believed to a useful indicator of at least general trends in dispositions.

2011 through May 16 – Monetary Sanctions by Category
($ in Millions)

Given what is likely to be a substantial increase in meritorious tips that will be received in the future as a result of the whistleblowing program, it is likely that if the SEC has the budget that is sufficient to handle a significant increase in enforcement activity, the whistleblower program will result in a sharp increase in enforcement proceedings. If the SEC is not given the resources to greatly increase the number of enforcement proceedings, it is likely that the SEC will follow the following courses:

• Refer many of the complaints of wrongdoing back to the subject company for investigation with a mandate to report back to the SEC, which could lead to an enforcement action without a significant expenditure of staff time. The adopting release noted that “we expect that in appropriate cases, consistent with the public interest and our obligation to preserve the confidentiality of a whistleblower, our staff will, upon receiving a whistleblower complaint, contact a company, describe the nature of the allegations, and give the company an opportunity to investigate the matter and report back.”
• Prioritize among the securities law violations and pursue the more serious ones, which should lead to a substantial increase in the number of enforcement proceedings resulting in monetary sanctions in excess of $1 million, which will only make whistleblowing more attractive.

3. The SEC rules allowing whistleblowers to report on a dual track – reporting to the company and to the SEC – will put significant pressure on companies in terms of investigating and self-reporting.

The SEC whistleblower rules are structured to encourage whistleblowers to report both internally and to the SEC, but initially internally. Such “dual-track” reporting is designed to encourage internal reporting by holding out the possibilities of an increased likelihood of receiving an award and of increasing the amount of the award for whistleblowing. But dual-track reporting will have the effect of putting significant pressure on companies in how they investigate internal reports of wrongdoing and whether to self-report securities law violations discovered in the course of such investigations.

Dual-track reporting could increase as the probability of receiving, as well as the magnitude of, any whistleblower bounty award for three reasons:

• The criteria for determining the amount of a whistleblower bounty award provides a plus-factor for participation in an entity’s internal compliance procedures, thus possibly increasing the magnitude of any award [14];
• The SEC adopting release indicates that dual-track reporting increases the probability of receiving an award because there would be “two paths to a recovery – a Commission investigation, or an internal corporate investigation”; [15] and
• If the information is reported internally and the employer provides the Commission with the whistleblower’s information or with the results of an investigation initiated in response to the whistleblower’s information, the whistleblower is given credit for all of the information reported by the company, even if the information he reported internally does not lead to a successful enforcement action, thereby possibly increasing the probability and the magnitude of an award. [16]

The SEC rules do not require a person electing to use dual-track reporting to indicate in his internal report to the company whether he will also report directly to the SEC or to report when he has reported to the SEC.

However, the whistleblower rules provide that certain persons [17] will not be eligible for a whistleblower bounty award unless, before reporting to the SEC, the reporting person waits at least 120 days since the person internally reported the information or since the person received the information under circumstances indicating that it had been internally reported. Such persons may report the alleged wrongdoing to the SEC before 120 days has elapsed, but, except as noted below, they would not be eligible for a whistleblower award. If the entity that would be subject to the whistleblower complaint reports to the SEC before the whistleblower, the whistleblower would not be eligible for a whistleblower bounty. Even in cases where the company knows that the person making the internal report is subject to a 120-day waiting period, the company will be under pressure to make an investigation and if warranted, report to the SEC before the lapse of the 120-day period. However, there is an important exception to the 120 day waiting period: the 120 day waiting period does not apply if a reporting person has a reasonable basis to believe that disclosure of the information to the SEC is necessary to prevent the relevant entity from engaging in conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors. The SEC did not indicate what “substantial injury to the financial interest or property of the entity or investors” means, but presumably many financial-statement and other frauds would be likely to cause substantial injury to the company or to investors. A company that receives an internal whistleblower complaint from a person whom company knows is subject to a 120-day waiting period will have to assess the likelihood that the person, relying on the exception, will quickly report the alleged wrongdoing to the SEC.

Prior to the adoption of the SEC whistleblower rules, some whistleblowers may have reported internally and also to the SEC. But we believe that in most cases, a person reporting wrongdoing internally would not have also reported the wrongdoing the SEC, except perhaps in certain cases involving frustration where it appeared that internal reporting did not result in the company appropriately dealing with the wrongdoing.

Because the final rules are designed to make dual-track reporting the most attractive option for whistleblowers, companies should assume – and this is an assumption that they did not have to make before – that every internal report of wrongdoing within the scope of the whistleblower rules will be followed by a report to the SEC by the whistleblower. In fact, many internal reports will not involve dual-tracking and the employee will report only internally, but there is no sure way for companies to tell when the employee reports only internally. Having assumed that the SEC has received or will receive the same report as the company receives, companies will have to further assume that, in all except for complaints that are facially frivolous or fraudulent, the SEC will eventually contact the company, whether to ask for the results of the company’s investigation or in connection with a formal or informal investigation. In fact, given the overwhelming number of tips the SEC is projected to receive, it may very well be that the SEC will not follow up on at least some tips that it receives. But a company cannot count on not being contacted by the SEC.

It follows that every complaint that is not facially frivolous or fraudulent should be treated as if the results of the internal investigation will eventually be turned over to the SEC. This has consequences for, among other things, (i) who conducts the investigation (for example, management or a committee of the board and whether outside counsel is hired and at what point) and (ii) in many cases, the thoroughness and the scope of the investigation. A less-than-thorough or a too-narrowly focused internal investigation is not likely to sit well with SEC staff in an enforcement mode. Moreover, if the investigation determines that a violation of the securities law has occurred and should be, or possibly should be, reported, the possibility that the SEC may have information from the whistleblower’s complaint and may follow up with the company will exert strong pressure on the company to self-report. Failing to report a known violation is not likely to be favorably looked upon by SEC staff in an enforcement mode.

4. Internal reporting, even if it is part of dual-track reporting, can provide companies with significant benefits. If companies want to increase internal reporting they should understand and take into account the factors affecting the decision-making of potential whistleblowers.

Even though the whistleblower rules are designed to encourage internal reporting, they do not require an employee to report internally. Employees can report only to the SEC. From the company’s point of view, it is beneficial to the company if the complaint of wrongdoing is made internally, even if the employee dual reports. If a complaint is made internally, the following benefits may be available to the employer:

• The company can be assured that the allegation of wrongdoing will actually be addressed. The SEC projects that it will receive more than 30,000 tips and 15,000 tips accompanied by Eligibility Information. Given that flood of complaints and the limitations of SEC staff resources, the SEC may dismiss, or delay dealing with, at least some, perhaps many, meritorious complaints without staff investigation of the alleged wrongdoing or referral to the company for investigation of the wrongdoing with a demand to report back to the staff on the nature and results of the investigation. If the SEC fails to follow up or fails to follow up in a timely fashion on a complaint made only to the SEC, the wrongdoing could continue, which is not in the company’s interest. Internal reporting avoids this problem;
• On the other hand, certainly some, perhaps many, facially reasonable complaints of wrongdoing made to the SEC will prove after a cursory investigation to be frivolous or fraudulent, but the SEC may choose to investigate such complaints or refer the matter to the company for investigation. If the complaint is made internally, the company should be able to dispose of unfounded allegations of wrongdoing more quickly and efficiently and at significantly less cost than if the SEC commences an investigation or refers the matter to the company for investigation after the company’s investigation is completed; and
• If the claim of wrongdoing proves to be meritorious, and if the complaint is made internally, the company may be quickly able to take appropriate remedial action thereby lessening the likelihood of an SEC enforcement action after the SEC contacts the company, or at least lessening the severity of the type of remedy (an administrative cease-and-desist versus a court-ordered injunction) or monetary sanctions.

In order to increase the likelihood that an employee will report internally, companies are often advised to encourage employees to use the internal reporting mechanisms. Doing so cannot hurt. In fact, encouragement to report internally certainly may work for many potential employee whistleblowers. The SEC noted that “[n]on-monetary incentives that often motivate individuals to whistleblow include: (i) cleansing the conscience, (ii) punishing wrongdoers (in some cases out of spite), (iii) simply ’doing the right thing‘ for the sake of a general increase in social welfare, or (iv) motive for self-preservation.” [18] Presumably, such employees, to the extent that they are unaware of the company’s internal reporting program, may avail themselves of such a program if they are reminded such a program exists and encouraged to use it.

But many potential whistleblowers are not primarily motivated by the factors noted above, and the calculus of their decision-making is quite different. The legislative history of Section 21F notes that potential “whistleblowers often face the difficult choice between telling the truth and the risk of committing ‘career suicide.’” [19] The SEC noted that whistleblowing has “the potential for costs to them [whistleblowers] in terms of time, money, social stigma, and a possible job loss.” [20] It goes on to note that “[w]e believe that the fear of retaliation and other forms of harassment, as well as other social and psychological factors, can have a chilling effect on certain whistleblowers.” [21] The academic literature supports this assessment. As “Who Blows the Whistle on Corporate Fraud,” [22] a study of “all reported cases of corporate fraud in companies with more than $750 million in assets between 1996 and 2004,” notes:

“As expected, the burdens of whistleblowing are large. In 82% of cases where the identity of the whistleblower was revealed, s/he was fired, quit under duress, or had significantly altered responsibilities. In addition, many employee whistleblowers report having to move to another industry and to another town….

The surprising part, thus, is not that most employees do not talk; it is that some talk at all.” [23]

The SEC’s adopting release does not distinguish between internal reporting programs that permit anonymous reporting and those that do not. Certainly, anonymous reporting will shield many whistleblowers from adverse effects. But sometimes an anonymous whistleblower, whether reporting internally or to a government agency, can be identified. In a few cases, anonymous reporting systems are not really anonymous. In addition, suspicion naturally falls on those who may have complained to supervisors or co-workers about the wrongdoing or appear disgruntled or unhappy and in a number of cases, the whistleblowers, pressured by supervisors or fellow workers, have admitted to having made a whistleblower report. [24]

Realistically, even given the availability of anonymous whistleblowing internally or to the government, the anti-retaliation provisions in Section 21F and the Sarbanes-Oxley Act, while helpful, are not nearly enough to assuage concerns of some potential whistleblowers about the likelihood of being identified as a whistleblower and suffering adverse effects.

Indeed, the bounty provisions of the SEC whistleblower rules assume that many persons who might not otherwise report wrongdoing because the possible adverse effects “would respond to the financial incentive offered by the whistleblower program.” [25] Accordingly, the “[t]he whistleblower award program …seeks to shift the balance of these factors in favor of timely blowing the whistle over silence.” [26] Obviously, if the balance is being tipped in favor of reporting, the threat of suffering adverse effects as a result of whistleblowing would still exist but would be outweighed by the possibility of a whistleblower bounty. Because adverse effects are more likely if the whistleblowing is reported internally and because the SEC believes that financial incentives may not be sufficient to cause some potential whistleblowers to report internally, the SEC provides whistleblowers with the option of reporting directly to, and only to, the SEC.

If companies want to increase internal reporting (whether dual-track reporting or reporting only to the company), management should understand the decision-making process of the potential whistleblower and should make it clear in advance that the company will take action to assure that the employee will not suffer any adverse effects, whether from management, immediate supervisors, or co-workers, and indeed will be treated favorably. Given that a valid and significant whistleblowing complaint by its very nature is likely to put in jeopardy the job of one or more management personnel, immediate supervisors, or co-workers, protecting a whistleblower from adverse effects resulting from the conduct of such persons, much less assuring the whistleblower who makes a good faith complaint that he will be treated favorably, may not be easy. But if a company wants to increase internal reporting, it should examine how it handles whistleblowers and their environment and take appropriate action to establish an appropriate corporate culture and corporate policies

5. Companies may not require employees to only report internally and not to the SEC and may not require employees to waive or limit the benefits of Section 21F and the whistleblower rules, including the anti-retaliation provisions.

In its release accompanying the adoption of the whistleblower rules, the SEC cited Section 29(a) of the Securities Exchange Act of 1934, noting that it provides that “[a]ny condition, stipulation, or provision binding any person to waive compliance with any provision of this title or any rule or regulation thereunder …shall be void.” [27] The SEC then noted that “under Section 29(a), employers may not require employees to waive or limit their anti-retaliation rights under Section 21F.” [28] It also follows that employers may not prohibit employees, former employees, or others from reporting wrongdoing to the SEC or claiming the benefits of the SEC whistleblower rules.

As noted above, the SEC whistleblower rules provide that certain persons [29] may not be eligible for a whistleblower bounty award unless, before the person reports to the SEC, at least 120 days have elapsed since the person internally reported the information or since the person received the information under circumstances indicating that it had been internally reported. To some extent, this provision may have the same effect – on the specified persons noted in the footnote below – of the company requiring persons to initially report internally. However, there is an important exception to the 120 day waiting period: the 120 day waiting period does not apply if a person has a reasonable basis to believe that disclosure of the information to the SEC is necessary to prevent the relevant entity from engaging in conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors. The extent to which this exception swallows up the requirement of a 120-day waiting period for specified persons will be determined in the future.

Endnotes

[1] www.justice.gov/opa/pr/2008/November/fraud-statistics1986-2008.htm
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[2] Smith, The Qui Tam Provision of the Federal False Claims Act, at www.fwlaw.com/Resources/Articles/tabid/214/default.aspx
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[3] Committee Report, 111-176, April 30, 2011, at 111
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[4] 2010 Performance and Accountability Report, www.sec.gov/about/secpar2010.shtml (2010 Report”) at page 53
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[5] The impact of making the awards mandatory and the range of awards from 10% to 30% is likely to be very significant. Since 1988, the SEC has maintained a whistleblower bounty program for insider trading. The maximum award is 10% and the SEC has discretion over whether to make awards and the amount of the awards. The SEC has not made many awards. The program has been very ineffective. There have been only seven payouts to five whistleblowers for a meager total of $159,537. Assessment of the SEC’s Bounty Program’, Office of Inspector General, U.S. Securities and Exchange Commission, Report No. 474. March 29, 2010.
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[6] 2010 Report, at 52
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[7] Id.
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[8] Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934, Release No. 34-64545 (“Adopting Release”), May 25, 2011, at 210
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[9] Id., at 210
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[10] Senate Committee Report, 111-176, April 30, 2011, at 111
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[11] Id., at 111
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[12] The litigation releases are available at www.sec.gov/litigation/litreleases.shtml and the administrative orders are available at www.sec.gov/litigation/admin.shtml. If there were several defendants in enforcement action and a final judgment or settlement was reported as to one or more parties prior to 2011 and also in 2011, final judgment or settlement amounts for all parties were aggregated and reported in the chart for 2011. Enforcement proceedings that sought revocation of registration as a registered representative or investment adviser or the right to practice before the Commission were not included in the table.
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[13] Most of the sanctions consisted of disgorgement and interest. The largest fine was $500,000 and the next largest fine was $175,000.
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[14] Adopting Release, at 232
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[15] Id. at 231
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[16] Id., at 101
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[17] The persons subject to the 120-day waiting period include (A) An officer, director, trustee, or partner of an entity and another person was informed of allegations of misconduct, or learned the information in connection with the entity’s processes for identifying, reporting, and addressing possible violations of law; (B) An employee whose principal duties involve compliance or internal audit responsibilities, or was employed by or otherwise associated with a firm retained to perform compliance or internal audit functions for an entity; (C) A person employed by or otherwise associated with a firm retained to conduct an inquiry or investigation into possible violations of law; or (D) An employee of, or other person associated with, a public accounting firm, who obtained the information through the performance of an engagement required of an independent public accountant under the federal securities laws (other than an audit), and that information related to a violation by the engagement client or the client’s directors, officers or other employees.
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[18] Id., at 230
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[19] Senate Committee Report, 111-176, April 30, 2011, at 111
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[20] Adopting Release, at 230
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[21] Id., at 235
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[22] CRSP Working Paper No. 618, available at ssrn.com/abstract=891482
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[23] Id., at 30 and 31
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[24] See for example, Brown v. Lockheed Martin Corp., ARB No. 10-050, ALJ No. 2008-SOX-49 (ARB Feb. 28, 2011) and Gomez v. The Finishing Company, Inc., 369 Ill. App. 3d 711, 861 N.E.2d 189 (2006)
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[25] Adopting Release, at 103
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[26] Id., at 215
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[27] Adopting release, at 20
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[28] Id., at 20
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[29] The persons subject to the 120-day waiting period include (A) An officer, director, trustee, or partner of an entity and another person was informed of allegations of misconduct, or learned the information in connection with the entity’s processes for identifying, reporting, and addressing possible violations of law; (B) An employee whose principal duties involve compliance or internal audit responsibilities, or was employed by or otherwise associated with a firm retained to perform compliance or internal audit functions for an entity; (C) A person employed by or otherwise associated with a firm retained to conduct an inquiry or investigation into possible violations of law; or (D) An employee of, or other person associated with, a public accounting firm, who obtained the information through the performance of an engagement required of an independent public accountant under the federal securities laws (other than an audit), and that information related to a violation by the engagement client or the client’s directors, officers or other employees.
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