Enacted pursuant to Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Rule 21F of the Securities Exchange Act of 1934, as amended, provides for monetary awards and protection from retaliation for corporate whistleblowers, among other things. Awards under the rule are limited to information relating to violations of federal securities laws leading to a successful Securities and Exchange Commission (SEC) enforcement action resulting in monetary sanctions exceeding $1 million. While the granting of awards under the rule is contingent on the satisfaction of multiple procedural and substantive requirements, the rule creates an unavoidable incentive for the disclosure of sensitive information about subject companies, including information that may be subject to attorney-client privilege, which, under certain circumstances, may be deemed a waiver of such privilege.
In adopting Rule 21F, the SEC implicitly recognized this incentive, and expressly excluded tips based on information obtained through attorney-client privileged communications or in the course of the legal representation of others from eligibility for awards. Such exclusion is not applicable, however, where the disclosure of the information was otherwise permitted, such as instances where the privilege had been waived, or where disclosure was permitted under applicable ethical standards or SEC rules or regulations (for example, Sarbanes-Oxley provisions permitting disclosure to the SEC under certain circumstances). It should also be noted that while the rule protects certain attorney-client privileged information, other confidential information, including information protected by a non-disclosure or similar agreement, is not protected under the rule and companies generally may not seek to prevent a whistleblower from disclosing information to the SEC by enforcing, or threatening to enforce, a confidentiality agreement.