The deadline was Friday, Dec. 17, for submitting comments in response to the Securities and Exchange Commission's proposed rules to implement the whistleblower provisions of the Dodd-Frank Act, i.e., the financial regulatory reform legislation [Release No. 34-63237; File No. S7-33-10]. As the Federal Register summarystates:
The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010 ("Dodd-Frank"), established a whistleblower program that requires the Commission to pay an award, under regulations prescribed by the Commission and subject to certain limitations, to eligible whistleblowers who voluntarily provide the Commission with original information about a violation of the Federal securities laws that leads to the successful enforcement of a covered judicial or administrative action, or a related action.
In its comment letter, the American Association for Justice objected to the proposal because to qualify, a whistleblower's information would had to have "significantly contributed to the success of the action" and the information "would not otherwise have been obtained and was essential to the success of the action." AAJ writes:
The requirements proposed in this definition are overly stringent and could potentially be used to defeat the very purpose ofthe rule. First, this language requires that the whistleblower prove that information "significantly contributed" to the success ofthe action. This language is not rooted in the Dodd-Frank Act and the SEC does not provide any guidance on how "significantly contributed" will be defined. On its face, this language seems like an overly high standard that would be near impossible to meet. AAJ agrees that whistleblower information needs to be reliable in order for an award to be tendered but this terminology and lack of definition are too restrictive and would unnecessarily limit the amount of awards that are approved.
Unsurprisingly, the trial lawyers also object to limiting lawyer fees:
Licensed attorneys are already subject to professional rules of conduct that prohibit charging excessive fees in the state where they are licensed. The Model Rules ofProfessional Conduct provide, "A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses." As a result, any additional rules would be duplicative. Furthermore, this issue is fundamentally a state issue and should be dealt with as such. The SEC should not devote its resources to developing additional rules regarding attorney fees.
The AAJ does like the language that would allow contingency-fee arrangements, naturally.
As for the business side, a 19-page comment letter (with a 52-page appendix) from Americans for Limited Government, Ryder Systems, Financial Services Institute, the U.S. Chamber of Commerce, Verizon, and White & Case LLP recommended these changes:
- Exclude culpable individuals from award eligibility;
- Exclude individuals with legal, compliance, audit, ethics responsibilities, or those who have a professional privilege from award eligibility, subject to a narrow exception;
- Condition award eligibility on the use of an available internal reporting system;
- Establish a policy under which the SEC will share information it receives with entities that are the subject of a complaint and provide those entities with an opportunity to fully investigate the allegations before they are reviewed by the Commission;
- Extend the 90-day grace period provided for whistleblowers to report information to the SEC after reporting it internally to 180 days; and
- Clarify that good-faith employment actions taken by a corporation that is the subject of a complaint are not retaliatory if based on factors other than an individual's whistleblower status.