S.E.C. Whistleblower Program: Overview and Analysis
University of Maryland University College
ACCT 630 – Fall 2015
April 26, 2015

Abstract
Amidst the corporate scandals, fraud, and securities laws violations that have made
headlines, Congress passed laws to change corporate practices and increase accountability with
the intent of protecting investors and regaining investor confidence. Two of such laws enacted
were the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010. While each law has different emphasis, both have whistleblower
protection and anti-retaliation provisions. They are similar in context but the Dodd-Frank Act
provides additional rules and it is also responsible for the creation of the U.S. SEC
Whistleblower Program.
The establishment of the program, however, did not happen without debate. The SEC
received many letters and comments concerning the program rules. Some provided support while
others, opposition. This paper seeks to examine the laws from which the program is derived as
well as to dissect and analyze the primary concerns that were debated prior to the SEC producing
the final rules.

Introduction
In light of the highly publicized corporate scandals and financial crisis, such as the
massive fraud cases of Enron and WorldCom and the 2008 financial crisis, Congress enacted
laws to protect investors through changes in the corporate setting and the financial industry. On
July 30, 2002, the Sarbanes-Oxley Act of 2002 (“SOX”) was passed. Through its strict reforms,
this law intended to protect investors, particularly with respect to corporate governance and
changes to financial practices (Sarbanes-Oxley Act of 2002, 2002). The next major reform
happened eight years later. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Act (“Dodd-Frank Act”) was signed into law (Sweet, 2010). With an emphasis on the
financial industry, this law intended to restore confidence in the financial system through
increased regulations that are meant to prevent financial crisis by detection of any financial
bubbles (Sweet, 2010).
Of the various provisions of SOX and the Dodd-Frank Act, the ones in focus are Section
806 of SOX – Protection for employees of publicly traded companies who provide evidence of
fraud – which is under Title VIII – Corporate and Criminal Fraud Accountability – and Section
922 of the Dodd-Frank Act – Whistleblower Protection. The SOX whistleblower provisions were
the first to provide relief to whistleblowers while the Dodd-Frank Act further refined such relief
to include an expanded definition of covered employees as well as an extended filing date for
violation complaints. Together, these sections of the Acts provide protection for covered
employees that are considered whistleblowers. The Dodd-Frank Act, in particular, provide the
basis for the Securities and Exchange Commission’s (“SEC”) highly debated and recently
established Whistleblower Program (Sarbanes-Oxley Act of 2002, 2002).

SOX – Section 806 Overview
SOX, particularly the Section 806 provisions, addresses the protection for employees
who divulge information as to the fraud activities of a firm. It is the building block for
whistleblower protection against anti-retaliation from which Section 922 Dodd-Frank Act
addressed and enhanced in its whistleblower protection provisions. Overall, this section of SOX
addresses the role of a whistleblower in providing information about company violations as well
as the damages that can be sought if it can be proven that a whistleblower was discriminated
against in the process of providing such information (Sarbanes-Oxley Act of 2002, 2002).
Section 806 of SOX offers protection to employees of publicly traded firms or firms that
have securities registered under the Securities Exchange Act of 1934 against company retaliation
when they “blow the whistle” on fraud or fraudulent reporting committed by the company
(Sarbanes-Oxley Act of 2002, 2002). According to this section, an employee is covered under the
protection of SOX if he or she is or was employed at the time by a public company and when
such person discloses information about violations of SEC rules and regulations or other types of
Federal law, particularly regarding “fraud against shareholders.”
Information Provided
The type of information provided by an employee that is covered under this section of
SOX is any information on the conduct of the company where the employee “reasonably
believes” that anti-fraud laws and regulations were violated (Sarbanes-Oxley Act of 2002, 2002).
Such information offered could be as straightforward as the employee providing an initial tip,
providing assistance in an investigation, or could be by providing testimony for or participation
in a proceeding filed or to be filed. In addition, the information covered is one given to a Federal

regulatory agency, law enforcement agencies, members or committees of Congress, or any
official with “supervisory authority over the employee” (Sarbanes-Oxley Act of 2002, 2002).
In a nutshell, information relating to a firm’s activities meant to defraud shareholders that
are shared with government officials or authorities at any stage by an employee of the firm –
initial disclosure of knowledge, disclosure throughout investigations, or disclosure at final stages
such as court proceedings – are protected from discrimination and retaliation. According to this
section, a firm may not discriminate against the employee for any lawful act of protecting
shareholders. Discrimination in this case includes “discharge, demotion, suspension, threat,
harassment, or any other manner…in the terms and conditions of employment” (Sarbanes-Oxley
Act of 2002, 2002).
Remedies
If an employee of a firm was discriminated against by the firm, an officer of the firm,
another employee, a contractor, subcontractor, or an agent of the firm because he or she
presented information to agencies and officials mentioned above relating to fraud, that employee
is afforded remedies under this section of SOX. Remedies include compensatory damages and
retained rights (Sarbanes-Oxley Act of 2002, 2002). Compensatory damages that could be
awarded under this section include the following:

Reinstatement of position held with the firm – the employee would be given back the
same job status as before the discrimination occurred and would not be given a reduced
job status or demotion of any kind.

Retro-pay with interest tacked on – the employee would be given back pay for the period
when the discrimination occurred, if it involved some sort of loss of income. In addition,
interest would be assessed on the income withheld.

Additional monetary compensation for special damages – the employee would be
reimbursed for costs incurred to defend against the discrimination. Such special damages
would include litigation costs, attorney fees, or any other fees incurred as a result of the
discrimination (Sarbanes-Oxley Act of 2002, 2002).
An employee who has been discriminated against, as it applies to this section, can seek

these remedies within ninety days of the violation by first filing a formal complaint with the
Secretary of Labor and if no decision was made within 180 days as to the action to be taken, then
the employee can bring about a lawsuit with the relevant district court (Sarbanes-Oxley Act of
2002, 2002). In the latter case, the district court would have full jurisdiction to preside over the
discrimination case “without regard to the amount in controversy.”
As can be conceived, Section 806 of SOX is aimed at providing protection so that
whistleblowers, if in the event of discrimination, can be made whole as if the discrimination did
not occur. Although the primary emphasis on SOX was to encourage investor confidence through
changes to practices primarily in financial reporting and corporate governance, it also included
provisions relating to the welfare of employees. With this section of the Act in place,
whistleblowers should be able to speak up about the corporate wrongdoing on behalf of
shareholders sans fear of retaliation.
Dodd-Frank Act – Section 922 Overview
As an enhancement to the SOX whistleblower provisions that were enacted eight years
prior, the Dodd-Frank Act of 2010 took the SOX a few steps further by providing expanded
protection to whistleblowers. In addition, it was the law that established the SEC. Office of the
Whistleblower, and in the process, it was also the law responsible for the creation of the SEC
Whistleblower Program (U.S. Securities and Exchange Commission, n.d.).

Section 922 of the Dodd-Frank Act amended the Securities and Exchange Act of 1934’s
Section 21F – Securities Whistleblowers Incentives and Protection – by addressing the
whistleblower’s protection under the Act (Dodd-Frank Wall Street Reform and Consumer
Protection Act, 2010). It expands beyond the whistleblower scope of SOX provisions by
broadening the definition of an “employee” and including stipulations for the (1) payment of
awards, (2) denial of awards, (3) Investor Protection Fund establishment, and (4) the various
means of whistleblower protection that both supplement and enhance the provisions covered
under SOX – those which are mentioned above (Dodd-Frank Wall Street Reform and Consumer
Protection Act, 2010).
Payment of Awards to Employee
Under Section 922, the definition of a covered employee is expounded to include not
only an employee of those mentioned under “Remedies” above, but also to include an employee
of affiliates and subsidiaries of the firm in question. This enhanced the SOX’s definition of an
employee as it allows for more people to be eligible for protection under the Dodd-Frank Act and
it reduces the doubt as who to may qualify as a covered employee.
In addition to adding to the categories of covered employees, Section 922 also enhances
SOX by explicitly stating the range of monetary awards that can be given to whistleblowers.
Under this section, whistleblowers can be awarded monetary compensation for original
information provided to the SEC in a value range from 10 percent to no more than 30 percent of
what is collected from the firm in question (Dodd-Frank Wall Street Reform and Consumer
Protection Act, 2010). Such payment to a whistleblower would be derived from monetary
sanctions credited to the SEC Investor Protection Fund (“Fund”) which was set up with the
Treasury of the United States, as required by the Act. The amount to be determined as award to

the whistleblower is at the discretion of the SEC and is based on due consideration for the
following:

Value of the information in relation to the success of the actions taken against the firm in
question

Degree of participation in relation to the judicial and administrative processes

Extent to which the award to the whistleblower would serve as a deterrence for other
securities laws violations

Other factors that the SEC may deem relevant such as when established by new rules or
regulations (Dodd-Frank Wall Street Reform and Consumer Protection Act, 2010).

In addition, since the payment of awards would come from the Fund exclusively, the Dodd-Frank
Act explicitly states that the amount of award determined for payout should not be affected by
the balance of the Fund (Dodd-Frank Wall Street Reform and Consumer Protection Act, 2010).
In other words, irrespective of the amount of monies in the Fund at the time of award, the SEC
should calculate a payout amount and “make good” on its promise to pay. Any payout in excess
of the balance of the Fund would be covered by the sanctions from which the award is derived.
Denial of Awards
On the other hand, as equally as it is important to stipulate the payment of awards, the
denial of awards was also addressed in this section of the Dodd-Frank Act. Whistleblowers could
be denied an award if the following applies to the individual(s):

Employed by related agencies – the SEC other regulatory agencies, Department of
Justice, the Public Company Accounting Oversight Board, a self-regulating organization,
or any law enforcement agencies.

Convicted of criminal violations related to the judicial and administrative action in
question

Obtained the information through financial statement audits that are required under the
securities laws

Failed to provide information to the SEC as deemed by the SEC through its rules and
regulations.
If any of the above applies to the whistleblower, he or she cannot receive awards for the

information provided. In addition, the information that leads to successful prosecution can only
be granted consideration for award if it is new and original information or that which was not
already known to the SEC (Dodd-Frank Wall Street Reform and Consumer Protection Act,
2010).
Whistleblower Protection
Apart from the monetary awards that can be given to whistleblowers, the Dodd-Frank Act
also defines the areas of protection afforded to whistleblowers that extend beyond the scope of
the SOX provisions. The protection provisions stipulated in the Dodd-Frank Act are similar to
that stipulated in SOX except that it adds to the amount of compensatory damages that can be
collected and it extends the statute of limitations on the whistleblowing coverage period.
As it relates to the changes to compensatory damages, if an employee was terminated for
whistleblowing reasons, under Section 922 of the Dodd- Frank Act, such employee can be
awarded double the amount of back pay, including interest (Dodd-Frank Wall Street Reform and
Consumer Protection Act, 2010). The other forms of compensatory damages remain the same as
named in the SOX provisions.

As it relates to the changes to the statute of limitations, an employee has 180 days to file
a complaint under the Dodd-Frank Act, as opposed to the 90 days under SOX (Dodd-Frank Wall
Street Reform and Consumer Protection Act, 2010). The lengthened statute of limitations for
complaints provides for more protection under the Act as well as allows for more time for the
objectives under the Act to be effective. In other words, fewer whistleblowers would be denied
protection as there would be additional time to file a complaint.
As can be envisioned, the provisions under the Dodd-Frank Act provide enhanced
reforms from the precursor Act – SOX. While SOX laid the foundation for many reforms for
overall corporate accountability, certain elements of the Dodd-Frank Act improved SOX,
particularly with respect to its whistleblowing provisions. Also, in additional to the major
elements stated above, the Dodd-Frank Act provisions also include other elements not included
in SOX such as confidentiality, a study on the effectiveness of the whistleblower protection
program, description of award payouts and Fund balances, and the requirement for audited
financial statements of the Fund (Dodd-Frank Wall Street Reform and Consumer Protection Act,
2010).
SEC Whistleblower Program Overview
Prior to the enactment of the Dodd-Frank Act, in particular, the SEC had limited authority
to take action against corporate wrongdoers. The agency’s “bounty program” could only be used
for insider trading and the monetary awards it was allowed to pay out had a ceiling of only 10
percent of the monetary sanctions collected (U.S. SEC, 2011). This means that the SEC now has
expanded authority, through the SEC Whistleblower Program set up by the Dodd-Frank Act, to
compensate whistleblowers for information provided, not only for insider trading, but now for

other federal securities laws violations. In addition, the payout amount increased from a
maximum of 10 percent to a range from 10 percent to 30 percent.
As explained in the preceding paragraphs on the SOX and the Dodd-Frank Act overview,
SOX provided the foundational elements for anti-retaliation provisions of whistleblowers that
provide information leading to judicial action and the Dodd-Frank Act further enhanced such
provisions by expanding the scope of what is covered under federal law primarily through the
creation of the SEC Office of the Whistleblower and the SEC Whistleblower Program. (Other
significant improvements include a broader definition of covered employees and the amplified
consequences for retaliation against such employees).
Program Objectives
The SEC Whistleblower Program is directed by the Dodd-Frank Act to enforce the
provisions under Section 922 (U.S. SEC, n.d.). According to the official SEC website, the
primary intent for the creation of the SEC Whistleblower Program is to “reward individuals who
act early to expose violations and who provide significant evidence that helps the SEC bring
successful cases” (U.S. SEC, 2011). This goes in line with one of the primary missions of the
SEC – to protect investors. The SEC is focused on exposing fraud against shareholders; however,
not at the expense of those providing the information that exposed the fraud. If an employee
blows the whistle on fraudulent acts, under SOX and the Dodd-Frank Act provisions, the SEC
must protect the individual from retaliation. In addition, it is instructed to also provide awards for
successful actions, as required by the Dodd-Frank Act and through the SEC Whistleblower
Program (U.S. SEC, 2011).

Debate and Controversy
The creation and implementation of the SEC Whistleblower Program, however, did not
arise without debate and controversy. Prior to creating the final rules of the program, the SEC
received more than 240 comment letters and about 1,300 “form letters” specifically addressing
concerns and support for the proposal (U.S. SEC, 2011). The letters received were from
commenters that range from individuals to lawyers and law firms, public entities, professional
organizations, audit firms, compliance personnel, whistleblower advocacy groups, academics,
and not-for-profit organizations who all chimed in on what they feel would be the impact of the
proposal (U.S. SEC, 2011).
The following were the primary controversial topics that were discussed in great detail
throughout the comment letters:

The impact of the Act on internal compliance processes

Definition of whistleblower and other key elements that would make certain claims
eligible for awards

Relationship between eligible whistleblowers and anti- retaliation provisions

Internal Compliance
Among these listed, the most controversial topic is the impact on a firm’s internal
compliance processes. Some feared that an employee’s bypass to the SEC would undermine a
firm’s internal compliance program and the firm’s ability to take remedial action and participate
with the SEC. These commenters suggested that the proposal would defeat the purpose of a firm
having an internal compliance department if its employees were allowed to go directly to the
SEC without first reporting the issues to the firm (U.S. SEC, 2011). In other words, the impact

would be such that a firm would not have the ability to implement its internal compliance or
make any form of corrective action prior to an employee tipping off the SEC.
On the flipside of this concern is the support for employees to go to the SEC with
information that can bring to an end one more firm engaged in corporate wrongdoing. Advocates
suggest that to state a firm and its management team could be completely unaware of fraud and
its securities violations is foolish (Havian & Kelton, 2010). It is likely that the management team
would know that their firm is violating securities laws. Additionally, advocates support the direct
link to the SEC on the basis that employees may fear retaliation if they bring concerns to the
internal compliance department (Havian & Kelton, 2010). If the environment of a firm is one
where retaliation is a possibility, employees may not be persuaded to divulge pertinent
information. The direct link to the SEC opens an avenue to bring to light corporate fraud.
With the support for and the concerns against the whistleblower link to the SEC either
before or after it is addressed with a firm’s internal compliance department, the SEC ruled
against the business community and stated in its final rules that a whistleblower need not initially
report the issue with the firm (U.S. SEC, 2011). The SEC’s position is that a whistleblower may
decide to channel the information through the internal compliance department, but the individual
is not required to do so. However, for common ground, the SEC does incentivize whistleblower
to first use the internal compliance department. As mentioned above in the Dodd-Frank Act –
Section 922 Overview, the award amount is based on a number of factors and included as a
factor is the degree of participation. The SEC ruled that participation in the judicial and
administrative process, including participation and cooperation with the whistleblower firm’s
own internal compliance and reporting systems, would increase the likely payout amount (U.S.
SEC, 2011). This is meant to encourage whistleblowers to first report with the firm in question.

Definition of Whistleblower
Another highly debated topic was the definition of “whistleblower” as this could impact
eligibility of awards and protection under the law, particularly with regards to the anti-retaliation
provisions. With respect to the debate about the definition of a “whistleblower,” it is two-fold:
(1) the types of informers that would fall under the definition of a “whistleblower” and (2) the
phrasing of other related words that would qualify a whistleblower and impact anti-retaliation
provisions (U.S. SEC, 2011).
Regarding the former, some shared concerns as to whom or what may constitute as a
whistleblower. For instance, some stated that a whistleblower should not be limited to a natural
person, but rather, it should also include un-naturalized institutions such as non-governmental
organizations (“NGO”), e.g., labor unions. Support for this is on the basis that NGO’s and other
institutions are in the best position to analyze corporate wrongdoing. By limiting the classes of
“whistleblowers” to strictly natural persons, this may be going against the objective of the Act,
which is to seek information of violations of securities laws and to reward and protect those who
provide such information (Voices for Corporate Responsibility, 2010).
Regarding the latter, the wording within the definition of a “whistleblower” was
deliberated upon as the phrasing could potentially disqualify some people that may otherwise
qualify to be a whistleblower. In addition, some commenters addressed the significant effects the
definition would have on anti-retaliation provisions against firms in question.
Concerning the disqualification of whistleblowers in the context of the definition, some
people recommended that the definition should be broadened to state “potential violations,”
“likely violations”, “possible violations,” “probable violations,” etc., that “has occurred, is
ongoing, or is about to occur” when describing the lawful act of an individual providing

information about the violations or future violations (U.S. SEC, 2011). Advocates for this also
suggested that “reasonable belief” or “good faith belief” should be inserted in the definition. The
basis for this broadened definition is for a wider coverage and qualification as to who can be
considered a whistleblower (U.S. SEC, 2011).
Contrary to this perspective, opponents felt strongly that broadening the definition of a
whistleblower to include “potential” violations could provide opportunities for people to exploit
the law and make puerile claims under the anti-retaliation provisions (Rubin, 2011; U.S. SEC,
2011). They assert that if an employee had adverse action against himself or herself and he or she
made frivolous claims as to “potential” violations of the firm, they may qualify as a
whistleblower and therefore seek damages under the anti-retaliation provisions (Rubin, 2011). In
this case there would be concern for abuse of the law in that the employee would make meritless
claims solely for the anti-retaliation benefits.
Other commenters claiming abuse also suggested that the relationship between the
eligible whistleblowers and the anti-retaliation provisions should be “categorically” divided
(U.S. SEC, 2011). They stated that if a company decides to make an adverse action against an
employee for other reasons not relating to whistleblowing, the company should be exempt from
the anti-retaliation provisions, even if the employee qualifies as a whistleblower (U.S. SEC,
2011).
SEC Rule on Definition and Exemption
Upon review and deliberation, the SEC decided on the final definition of “whistleblower”
and addressed the relationship between whistleblower and the anti-retaliation provisions. In
terms of who or what may constitute as a whistleblower, the SEC ruled that only natural persons
can be a qualified whistleblower. They did not agree that the definition should include