On Friday July 17, the SEC announced an award of more than $3 million to a company insider. This is the third largest award announced under the Program. In a press release, Andrew Ceresney, Director of the SEC’s Division of Enforcement, noted the importance of company insiders who come forward as whistleblowers, stating that “Insiders may hold the key to helping our investigators unlock intricate fraudulent schemes.” In this case, the SEC noted that the whistleblower provided specific and detailed information regarding a complex fraud scheme that would have otherwise been difficult to detect. Ceresney further stated that the financial incentives offered by the SEC’s whistleblower program continue to be “profoundly effective in helping [the SEC] protect investors and hold wrongdoers accountable.”
Sean McKessey, Chief of the Office of the Whistleblower added that the award “is another testament to the agency’s commitment to reward those who provide high-quality information that leads to successful enforcement actions and related actions.” McKessey explained that his office “continues to receive thousands of whistleblower tips each year. When those tips bear fruit, those individuals, like today’s whistleblower, may receive significant financial awards.” To date, the SEC has granted whistleblower awards totaling more than $50 million to 18 individuals, including former or current employees, consultants, investors, professionals working in the same or similar industries, and individuals with personal relationships with the defendants.
The SEC’s Whistleblower Program was created by the Dodd-Frank Act and has been in effect since 2011. 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. In this instance, the SEC has revealed that the whistleblower will receive more than $3 million, but the agency did not identify the percentage of sanctions collected from the company that this award represents. In arriving at the amount of the award, the SEC’s Claims Review Staff (“Staff”) noted that it gave “due consideration” to the whistleblower’s unreasonable delay in providing information to the SEC, however, the Staff noted that it did not apply the delay factor as severely as it could have done because some of that delay occurred prior to the establishment of the SEC Whistleblower Program. The Staff also recommended denying an award application from a second whistleblower on the grounds that the second individual did not provide sufficient information as required under the Program.
These large awards continue to attract the attention of law firms specializing in False Claims Act “qui tam” lawsuits. In this case, while the whistleblower’s identity is kept secret under the rules of the Whistleblower Program, the individual was represented by a counsel well known for its work with qui tam plaintiffs. As we previously predicted, just as the False Claims Act amendments in 1986 generated a cottage industry of firms representing whistleblowers in government contracting, the Dodd-Frank Act is now generating the same kind of industry related to public company whistleblowers, and many counsel with experience in the False Claims Act space are publicizing that experience to potential SEC whistleblowers.
Given the continued growth of the SEC Whistleblower Program, it is vital for companies 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 Touts Whistleblower Award to a Compliance Professional – Use Care in Responding to Reports of Potential Violations and It Pays to Blow the Whistle: SEC Doles Out Record-Breaking $30 Million Award to Overseas Whistleblower.