The SEC’s New Whistleblower Compensation Rules

On May 25, 2011, by a vote of 3 to 2, the SEC approved its whistleblower compensation rules substantially as proposed. These rules and the SEC's new Cooperation Initiative create strong monetary incentives for employees to race to the SEC to assert misconduct, which in turn will create greater pressure for companies to investigate alleged misconduct quickly and potentially to self-report violations to the SEC.

Summary of Key Components

Although the SEC has had limited authority for decades to compensate whistleblowers, it has historically been reluctant to do so.¹ Section 922 of Dodd-Frank materially changed the SEC's whistleblower program by providing substantial incentives for whistleblowers to come forward. First, whistleblowers can now be compensated for tips that lead to any type of SEC enforcement action, where the amount of monetary sanction (penalties plus disgorgement and interest) exceeds $1 million. Second, the maximum amount a whistleblower can receive