The whistleblower and “clawback” provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) raise concerns as to the coverage provided by their directors and officers (D&O) liability insurance programs.

The whistleblower protection provision of Dodd-Frank (Title IX, Subtitle B, Section 922) is especially notable as the provision establishes a potential bounty to individuals reporting “original information” to the Securities and Exchange Commission (SEC) regarding securities violations within their companies. If eligible, such “whistleblowing” activities could yield an award of 10 percent to 30 percent of the monetary sanctions imposed in an action, subject to a minimum sanction of $1 million. 

Under Dodd-Frank, employees with information can consider two choices:

• report allegations to their audit committee’s hotline in an attempt to fix the issue; or
• report to the SEC and collect at least 10 percent of $1 million.

Although several experts forecast a torrent of whistleblower activity, the SEC has yet to establish and staff a new office receive, review, and enforce the program.