In the past week, the SEC has issued two multimillion dollar awards to whistleblowers. The announcement of two significant awards in quick succession suggests that the “significant uptick” in in the number of tips noted by the Chief of the Office of the Whistleblower, Sean McKessey, earlier this year is resulting in a similar increase in awards to those who blow the whistle. The SEC has now awarded more than $67 million to 29 whistleblowers since the whistleblower program began in 2011. In describing these recent awards, Mr. McKessey stated that “[t]he whistleblower program has seen tremendous growth since its inception and we anticipate the continued issuance of significant whistleblower awards in the months and years to come.”
On May 13, the SEC announced a $3.5 million award to a whistleblower who provided information that significantly contributed to the success of an enforcement action already underway at the time the whistleblower submitted a tip. The Claims Review Staff (“CRS”) initially denied this whistleblower’s claim for an award on the basis that the whistleblower did not provide information that led to the successful enforcement of a Covered Action; however, when contested, the CRS determined that while the investigation was initiated in response to media reports of potential misconduct, the whistleblower provided new information and documentation that significantly contributed to the investigation. Andrew Ceresney, director of the SEC’s Division of Enforcement, explained that “[t]his particular whistleblower’s tip substantially strengthened our ongoing case and increased our leverage during settlement negotiations with the company,” and was, therefore, eligible for an award. As is its general practice, the SEC did not reveal the percentage of sanctions collected from the company represented by the award, but the CRS did note that the whistleblower endured “certain unique hardships” as a result of reporting wrongdoing to the SEC, including being unable to find employment.
On May 17, the SEC announced an award between $5 million and $6 million to a whistleblower for providing detailed information that the SEC stated led to securities violations that would otherwise have been nearly impossible for the agency to detect. This is the third largest award issued by the SEC under its Whistleblower Program. In addressing the award, Mr. Ceresney stated that employees are often the best sources of information because of their ability to witness potential wrongdoing by a company or other employees. “When they report specific and credible tips to us, we will leverage that inside knowledge to advance our enforcement of the securities laws and better protect investors and the marketplace.”
The SEC’s Whistleblower Program was created under the Dodd-Frank Act. Under the program, eligible whistleblowers may receive awards ranging from 10 to 30 percent of the amount the SEC collects in a successful enforcement action, providing those collections exceed $1 million. As the SEC continues to incentivize whistleblowers, leading to ever increasing whistleblower reports to the SEC, companies should continue to ensure that they have vigorous compliance programs in place to prevent and detect potential securities violations and to respond immediately in order to mitigate penalties that may result from inadvertent violations. For further information, see our previous alerts: SEC $700K External Whistleblower Award Highlights Need for Watchful Compliance Programs and SEC Awards Maximum 30 Percent Award to Whistleblower In Its First Whistleblower Anti-Retaliation Case.