May 26, 2011

The SEC’s New Whistleblower Rules

Yesterday, the SEC adopted rules – by a 3-2 vote – to implement Section 922 of Dodd-Frank, which added Section 21F to the Exchange Act. Here’s the 305-page adopting release – and here’s the press release and SEC Chair opening remarks.

Despite much criticism and lobbying, in the end, the SEC didn’t change its proposed framework to require whistleblowers to use a company’s internal reporting system as a condition to receiving a SEC bounty – although the final rules do include more incentives for whistleblowers to “blow” internally first. This controversial rulemaking will produce a torrent of memos and opinion pieces – we’ll post them in our “Whistleblowers” Practice Area as they come in. Here’s memos from Cooley, Morgan Lewis and Morrison & Foerster. The final rules become effective 60 days from Federal Register publication.

House Bill: Attacking Dodd-Frank’s Whistleblower Provision

Meanwhile, House Representative Michael Grimm (R-NY) has introduced a bill that seeks to change the whistleblower provision in Dodd-Frank. Some believe the bill was introduced to put pressure on the SEC ahead of its rulemaking. This May 24th letter from a group of groups asks Congress to leave the whistleblower provision intact.

SEC Proposal: Changes to Rule 506’s “Bad Actor” Disqualification

Yesterday, also by a 3-2 vote, the SEC proposed amendments to Rule 506 of Regulation D to implement Section 926 of Dodd-Frank, which would disqualify offerings by companies involving persons covered by the rule if they were subject to a “bad actor” order from the SEC (formerly known as “bad boys” in a less-politically correct world). Here’s the proposing release – and the press release. As this Skadden memo notes: “With more than 90% of the offerings made under Regulation D seeking exemption pursuant to Rule 506, these proposed rules could have a significant impact on the applicability of the exemption.”

– Broc Romanek