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In response to numerous corporate accounting fraud scandals including Enron, that rocked markets and financially devastated investors, Congress passed the landmark Sarbanes-Oxley Act (SOX) in 2002.  SOX seeks to improve corporate governance and compliance largely by holding chief executives and chief financial officers of public companies directly responsible for the accuracy of their financial statements.

SOX also contains a whistleblower protection provision. After hearing testimony from  Enron whistleblower, Sherron Watchins who blew the whistle on Enron Executives and was retaliated against, Congress sought to provide protection to whistleblowers in the future so they would forward to prevent similar types of corporate fraud that damages innocent investors.

The SOX whistleblower protection provision found in Section 806 of Act  and codified at 18 U.S.C. §1514A includes:

• Whistleblower Eligibility: An employee of a publicly traded company who provides information or assists in an investigation involving conduct that the employee reasonably believes violates securities laws, SEC regulations or any federal law relating to fraud against shareholders.  The employee may report these violations inside the corporation or to regulators and law enforcement.
• Legal Protections: Prohibits retaliation or discrimination against a whistleblower by their employer, and allows the whistleblower to file administrative action within 180 days with the Secretary of Labor. OSHA administers the program pursuant to 29 U.S.C. 660(c).  If the Secretary of Labor fails to issue a decision within 180 days, the whistleblower may seek review of the case in federal court.
• Damages: A whistleblower who prevails on their claim against their employer may be awarded relief to make the whistleblower whole including reinstatement of their position, back pay with interest, compensation for litigation costs, expert witness fees and reasonable attorneys fees.

The OSHA Whistleblower Regulations can be found at 29 C.F.R. 1977.

To learn more about the Sarbanes-Oxley whistleblower provisions, visit the National Whistleblower Center’s “Sarbanes-Oxley FAQ” here.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) of 2010, was passed to restore stability and reform the U.S. financial system in the wake of the Great Recession of 2008 that caused the collapse of the U.S. economy and the loss of 8.6 million jobs and $20 trillion in GDP.

One of the many financial areas targeted for reform involved the regulation of securities and investor protection. The Securities and Exchange Commission (“SEC”), who is charged with regulating securities and protecting investors, failed to detect and prevent massive securities frauds such as the decades long Bernie Madoff Ponzi Scheme that significantly harmed investors. The SEC also failed to heed the warnings of  whistleblowers such as Harry Markopolos that could have prevented these frauds. Recognizing that insiders are often the best source of information of corporate fraud and violations of securities law, Congress adopted Section 922 of the Dodd-Frank Act enhancing the SEC’s whistleblower program.

Improvements to the SEC Whistleblower program under Dodd-Frank, codified at Section 21F of the Securities and Exchange Act  of 1934, 15 U.S.C. §78u-6 and 7 include:

• Whistleblower: Defined as any individual, in the U.S. or a foreign country, who provides original information relating to a potential violation of securities laws to the SEC.
• Monetary Award: Whistleblowers are entitled to monetary award of between 10 to 30 percent of collected monetary sanctions, if the SEC is successful in bringing an enforcement action of securities fraud that results In the recovery of monetary sanctions exceeding $1 million USD.
• Legal Protections: Prohibits retaliation or discrimination against a whistleblower by their employer, and allows the whistleblower to file an action in court against employer if employer retaliates or discriminates.
• Confidentiality: SEC is prohibited from disclosing the identify of a whistleblower.

The SEC regulations implementing the Dodd-Frank Act whistleblower requirements can be found at  Implementation of the Whistleblower Provisions of Section 21F of the Security and Exchange Act of 1934 , Securities and Exchange Commission (May 25, 2011).

To learn more about the Dodd-Frank Act and its whistleblower provisions, check out the National Whistleblower Center’s “Dodd-Frank FAQ” here.

Cornell Law School’s Legal Information Institute (“LII”) maintains an extensive no-cost searchable legal research. The LII database includes the U.S. Constitution, the U.S. Code, the U.S. Code of Federal Regulations, the Uniform Commercial Code, U.S. Supreme Court decisions, and several other primary law sources.