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Individuals In Compliance-Related Roles Are Excluded From The Definition Of A Whistleblower Under Dodd-Frank

Dodd-Frank defines original information as information that is:

• “Derived from the independent knowledge or analysis of a whistleblower”;
• “Not known to the SEC other than by the whistleblower as the original source of the information”; and
• “Not exclusively derived from an allegation made in a judicial or administrative hearing, in a government report, hearing, audit, or investigation, or from the news media, unless a whistleblower is the source of the information.”

15 U.S.C. § 78u–6(a)(3).

The Final Rules apply this definition to exclude several categories of professionals who obtain information about violations because of their compliance-related roles:

• Attorneys, including in-house counsel, and non-attorneys who learn information from an attorney-client communication.
• Officers, directors, trustees or partners of an entity if they obtained the information because another person informed them of allegations of misconduct, or they learned the information in connection with the entity’s processes for identifying, reporting, and addressing potential non-compliance with the law. Officers or other designated persons are not precluded from recovery as whistleblowers if they actually observe the violations rather than, for example, learning of them through an employee report. Also, notably, the SEC removed non-officer supervisors from the list of designated persons.
• Employees whose principal duties involve compliance or internal audit responsibilities, as well as employees of outside firms that are retained to perform internal compliance or internal audit work.
• Those employed or otherwise associated with a firm retained to conduct an inquiry or investigation into possible violations of the law.
• Employees of a public accounting firm who acquire information through an audit or other engagement required under the federal securities laws relating to an alleged violation by the engagement client.

Hat tip: An outstanding article that covers the law and final regulations in comprehensive fashion is Dodd-Frank and the SEC Final Rule: From Protected Employee To Bounty Hunter, ST001 ALI-ABA 1487 (July 28-30, 2011), which was written by Littler Mendelson, P.C. lawyers John S. Adler, Edward T. Ellis, Barbara E. Hoey, Gregory C. Keating, Kevin M. Kraham, Amy E. Mendenhall, Kenneth R. O’Brian, and Carole F. Wilder. This post is partially derived from that article.