Exceptions To The Exclusions From The Definition Of A Whistleblower Under Dodd-Frank
The categories of individuals listed above may nevertheless be eligible for whistleblower status under certain circumstances. For attorneys, the Final Rules include an exception for attorney disclosures permitted under state bar rules. These rules vary, but most permit disclosures necessary to prevent the commission of a crime or fraud. The exception for permitted attorney disclosures applies equally to non-attorneys who receive the information in an attorney-client communication. Final Rules at 59.
Individuals in the other excluded categories listed above may be considered whistleblowers in the following circumstances:
• If they can demonstrate they have a “reasonable basis” to believe that disclosure of the information to the SEC is necessary to prevent “conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors.” Id. at 145. This is similar to the crime-fraud exception applicable to reports by attorneys. The SEC explains that “in most cases” a whistleblower who seeks to collect an award on the basis of this exception will need to demonstrate that management or governance personnel at the entity were “aware of the imminent violation and were not taking steps to prevent it.” Id. at 74.
• If they have a reasonable basis to believe that the “relevant entity is engaging in conduct that will impede an investigation,” such as impermissibly influencing witnesses or destroying documents. Id. at 145-46.
• 120 days after (a) providing information to the entity’s audit committee, chief legal or compliance officer or his supervisor, or (b) receiving information under circumstances indicating the audit committee, chief legal or compliance officer, or supervisor was already aware of the information.
The Final Rules also clarify that an individual cannot collect an award on the basis of information obtained from someone who is excluded from eligibility for an award as a whistleblower. There is an exception to this rule, however, for information that the original source could permissibly report or if the whistleblower is providing information about possible violations involving the person from whom the information was obtained. For example, if an auditor learns from a colleague about his involvement in a client’s securities law violation, the auditor could report the violation to the SEC and collect an award as a whistleblower if the report led to a successful enforcement action.
Hat tip: An outstanding article that covers the law and final regulations in comprehensive fashion is Dodd-Frank and the SEC Final Rule: From Protected Employee To Bounty Hunter, ST001 ALI-ABA 1487 (July 28-30, 2011), which was written by Littler Mendelson, P.C. lawyers John S. Adler, Edward T. Ellis, Barbara E. Hoey, Gregory C. Keating, Kevin M. Kraham, Amy E. Mendenhall, Kenneth R. O’Brian, and Carole F. Wilder. This post is partially derived from that article.