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News July 11, 2011 Issue

SEC Delegates More Powers To Enforcement

Whistleblowers beware – the Division of Enforcement just got the power to blow your cover.

On June 30, the SEC gave Enforcement the power to reveal a whistleblower’s identity to "those persons to whom disclosure may be made without loss of confidentiality."

Those "persons" include:

  • the Attorney General of the United States;
  • an appropriate regulatory authority;
  • a self-regulatory organization;
  • a State attorney general in connection with any criminal investigation;
  • any appropriate State regulatory authority;
  • the Public Company Accounting Oversight Board;
  • a foreign securities authority; and/or
  • a foreign law enforcement authority.

It is all part of the Dodd-Frank Act (DFA) mandate that established the whistleblower award program now known as the Whistleblower Act. As part of that law, the DFA permits the SEC to share a whistleblower’s identity or information a whistleblower provides with other regulators or law enforcement entities "when necessary to accomplish the purposes of [the Securities Exchange Act] and to protect investors."

The Whistleblower Act generally preserves a whistleblower’s anonymity unless and until such time as the whistleblower’s identity is required to be disclosed a defendant or respondent in an action.

The Commission has now delegated this authority to the Division of Enforcement to "facilitat[e] administration of the whistleblower award program and the investigations and actions by those agencies and authorities that may receive whistleblower identifying information pursuant to this delegation," said the release.

Think of it as another arrow in Enforcement’s ever-expanding quiver of authorizations to quick action.

Delegating authority down to the various Divisions is nothing new. The SEC has long delegated the ability to issue orders in matters that do not present novel issues, for example. Delegated authorities generally promote administrative efficiency, expedience and effectiveness. Lately, the SEC has also cited conservation of resources in permitting action by the divisions without the delay of full Commission review.

In the wake of the Bernard Madoff scandal, that massive Ponzi scheme that went undetected by the SEC and other regulators for decades, the SEC has implemented major transformations of its Enforcement division and in OCIE. Pushing down powers such as subpoena authority to the Division of Enforcement has stripped away layers of bureaucracy to create a more nimble investigative force.

In June, the SEC delegated powers to the Division of Enforcement on two separate occasions.

In addition to the delegation of authority under the Whistleblower Act late last month, on June 13 the SEC also delegated to Enforcement the authority to issue witness immunity orders to compel individuals to give testimony or provide other information. "This delegation is intended to conserve Commission resources, enhance the Division’s ability to detect violations of the federal securities laws, increase the effectiveness and efficiency of the Division’s investigations, and improve the success of the Commission’s enforcement actions," said the release.

The June 13 delegation became effective June 17. The June 30 Whistleblower Act delegation became effective July 7.