Last week, the Securities and Exchange Commission published final regulations implementing whistleblower protection measures called for under the Dodd-Frank Act, the law implementing broad financial sector reforms. The law provides a financial incentive to persons who report certain securities law violations to the SEC, ranging from ten to thirty percent of any eventual financial penalty over $1 million collected by the agency.

Employers contended that the rules should require employees to exhaust internal compliance reporting procedures prior to becoming eligible for the financial rewards. In a 3-2 vote, the SEC declined to make this change to the rules. However, the agency agreed to pay the rewards when information is internally reported instead of just on complaints made to the SEC. The agency can also adjust the award depending on whether the complaining party assisted or interfered with internal compliance efforts.

SEC whistleblowers are protected from retaliatory action by the targets of their complaints, even if good faith complaints do not lead to a successful enforcement action. The new rules demonstrate the importance of strong internal corporate compliance programs by publically held companies subject to Dodd-Frank.