On March 8, 2016, the SEC announced the payment of almost $2 million to three whistleblowers. The largest of the three awards went to a whistleblower who voluntarily provided original information that prompted the SEC to open its investigation. That whistleblower, who received about $1.8 million, continued to provide valuable information throughout the investigation. The other two whistleblowers received approximately $65,000 each for providing information after the investigation started.
According to the SEC, its whistleblower program has now paid more than $57 million to 26 whistleblowers since the program was established in 2011 under the Dodd-Frank Wall Street Reform and Consumer Protection Act (see Section 21F of the Securities Exchange Act of 1934).
The press release announcing the latest award and the order determining the whistleblower award claims (which is highly redacted to remove the names of the whistleblowers and the company that was the subject of the enforcement action, as well as the percentage of the monetary sanctions collected in the action) do not make reference to the whistleblower’s relationship to the company. However, the SEC reported in the Office of the Whistleblower’s FY 2015 Annual Report that less than 50% of the awards granted under the program through the end of October 2015 were made to whistleblowers who were current or former employees of the company named in the SEC’s enforcement action, with the balance of the awards being made to “outsiders” such as investors who allege they were victims of fraud, “professionals working in a related industry” or individuals who “had a personal relationship with the alleged wrongdoer.”
Under the SEC’s whistleblower program, whistleblowers who disclose alleged wrongdoing by publicly traded companies, financial services institutions or other covered entities may be eligible for an award when they voluntarily provide the SEC with unique and useful information that leads to a successful enforcement action by a federal court or administrative action by the SEC. Since the program’s inception, the single largest type of allegation has been corporate disclosures and financials (which includes financial reporting and accounting fraud), followed closely by securities offering frauds and stock market manipulation. Whistleblower awards can range from 10% to 30% of the money collected when the monetary sanctions exceed $1 million. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money is taken or withheld from harmed investors to pay whistleblower awards.
By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. The whistleblower program also prohibits retaliation against whistleblowers by their employers.
PartnerArmed with more than three decades of capital market experience, Spencer represents smaller publicly traded companies, and often underwriters and investment funds, in public and private securities offerings. He focuses ...