The Securities and Exchange Commission (“SEC”) recently announced an award of more than $7 million to a whistleblower whose information and assistance were critically important to the success of an enforcement action. The whistleblower provided extensive and sustained assistance, such as identifying witnesses. 

According to the SEC press release, “The whistleblower’s information and assistance helped the SEC staff devise an investigative plan, craft document requests, and ultimately bring an important enforcement action focusing on serious financial abuses.”

Since its first award in 2012, the SEC’s Whistleblower program has awarded approximately $394 million to 73 individuals. This money is funded by an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards.  

Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. 

You May Have the Right to Recover as a Whistleblower.

The Whistleblower provision was established by the Dodd-Frank Act which was passed in the wake of the great recession. Among the Act’s achievements are the creation of the SEC’s Whistleblower Office and the SEC Whistleblower Program. This program offers awards to eligible whistleblowers who provide original information that leads to successful SEC enforcement actions with total civil penalties exceeding $1 million. 

In order to recover as a whistleblower, your tip must provide original information which caused the staff to open an examination or investigation, or the original information significantly contributed to a successful enforcement action where the matter was already under examination or investigation

Will I be able to submit a tip anonymously to the SEC Whistleblower Office? 

The answer is yes, but only if you have an attorney  represent you in connection with your submission. Hiring an attorney to represent you in connection with a whistleblower claim can help you through the process while maximizing the likelihood that your identity is not revealed to outside parties. As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose information that could reveal a whistleblower’s identity.

It would be very difficult for the SEC to continue to receive the best tips on fraud if  it did not take steps to protect whistleblowers’ confidentiality. As an example, in the most recent case, the SEC will often issue whistleblower awards and provide no information about the whistleblower or even the case number of the related enforcement action. 

What employment protections are available for SEC whistleblowers? 

Under Dodd-Frank, which created the SEC Whistleblower Program, employers cannot discharge, demote, suspend, harass, or in any way discriminate against employees for raising concerns about a potential securities-law violation. 

Do I Have to be an Employee or Former Employee to file a Tip?

No. Award recipients have also included investors who had been victims of the fraud, professionals working in the same or related industry, or other types of outsiders, such as individuals who had a personal relationship with the wrongdoer or individuals who have a special expertise in the market.

What types of violations qualify for a Whistleblower award? 

The SEC has jurisdiction over a wide range of industries and entities—both public and private. The most common tips involve:

  • Investment and securities fraud
  • Fraudulent securities offerings and Ponzi schemes;
  • Accounting fraud;
  • Internal Controls violations;
  • Insider trading;
  • Manipulation of stock price
  • Foreign bribery and other Foreign Corrupt Practices Act violations;
  • Unregistered securities offerings; 

Does my tip have to be made before the SEC examination?

No. An individual may be eligible to receive an award where the reported information leads to a successful enforcement action—meaning generally that the original information either caused the staff to open an examination or investigation, or the original information significantly contributed to a successful enforcement action where the matter was already under examination or investigation. The SEC Office of the Whistleblower reported in 2019 that of the whistleblowers who have received awards under the program, approximately 68 percent provided original information that caused staff to open an investigation or examination, and approximately 32 percent received awards because their original information significantly contributed to an already-existing investigation or examination. It is important that your information be original, meaning that you must be the first person reporting this information. 

If you believe you have information of a securities fraud or securities violation and have questions regarding a whistleblower claim, contact our offices today for a free consultation. Former Wall Street securities attorney Melanie S. Cherdack and her team of lawyers will evaluate your claim at no cost to you. Contact us by filling out our online contact form, or calling 888-768-2499.