The Securities and Exchange Commission voted unanimously to propose a whistleblower program to reward individuals who provide the agency with high-quality tips that lead to successful enforcement actions for financial fraud.

The SEC’s proposed rule comes after the Dodd-Frank Wall Street Reform and Consumer Protection Act included a provision outlining such a program. The proposed rule maps out a straightforward procedure for would-be whistleblowers to provide critical information to the agency. It conveys how would-be whistleblowers can qualify for an award through a transparent process that provides them with a meaningful opportunity to assert their claim to an award.

To be considered for an award, a whistleblower must voluntarily provide the SEC with original information about a violation of the federal securities laws that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million.

“We get thousands of tips every year, yet very few of these tips come from those closest to an ongoing fraud,” said SEC Chair Mary L. Schapiro in a statement. “Whistleblowers can be a source of valuable firsthand information that may otherwise not come to light. These high-quality leads can be crucial to protecting investors and recovering ill-gotten gains from wrongdoers.”

Independent public accountants who are auditing a client’s books would be excluded from the program because they are required by securities laws to include audit procedures to detect illegal acts. The proposed exclusion would apply to the employees of the independent public accountant, but would not apply to the client’s employees who perform an accounting function, even if they were interacting with the company’s outside auditor.

This proposed exclusion also only would apply if the information relates to a violation by the engagement client or the client’s directors, officers or other employees. It would not exclude information with respect to the independent public accountant’s performance of the engagement itself, such as a violation of the accountant’s requirements with respect to the engagement.

The proposed rule reflects the consideration of a number of potentially competing interests, and balances the need to encourage whistleblowers to come forward without promoting unintended consequences.

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