In November 2012, the Securities and Exchange Commission (SEC) released its Annual Report on the Dodd-Frank Whistleblower Program for the fiscal year ended September 30, 2012. According to the report, the SEC made its first whistleblower award payment under the whistleblower program established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The whistleblower was paid nearly $50,000 after helping the SEC stop an ongoing multimillion-dollar fraud and obtain court ordered sanctions of more than $1,000,000. The payment represented 30 percent—the maximum allowed by law—of the $150,000 collected by the SEC.
The SEC also reported that the Office of the Whistleblower received 3,001 tips, complaints, and referrals (TCRs) during the fiscal year 2012. The most common TCRs related to corporate disclosure and financials (18.2 percent), offering fraud (15.5 percent), and market manipulation (15.2 percent). While the majority of TCRs originated within the United States, 324 (10.8 percent) originated from foreign countries, such as the United Kingdom (74 TCRs), Canada (46 TCRs), India (33 TCRs), and China (27 TCRs).
The whistleblower program awards individuals that “voluntarily” provide “original” information leading to successful enforcement actions and monetary sanctions exceeding $1,000,000. The awards range from 10 to 30 percent of the amount collected, with the specific percentage determined by the SEC. Generally speaking, whistleblower submissions are considered “voluntary” if the individual provides his or her submission before a request, inquiry, or demand relating to the subject matter of the submission. Submissions are not “voluntary” if the individual is required to report the information due to a pre-existing legal duty, a contractual duty owed to the SEC (or certain other authorities), or a duty that arises out of judicial or administrative duties.
Information is considered “original” if it is derived from independent knowledge or independent analysis and is not already known by the SEC. This independence requirement limits the ability of certain individuals to reap an award under the program. Subject to certain exceptions, these limitations affect, for example, lawyers that receive information through representation of a client, officers, and directors that learn of misconduct from another person or through processes designed to identify and report possible violations of law, employees whose principal duties are audit and compliance, and outside firms retained to perform audit, compliance, and attestation services.
To start the process, a whistleblower must submit a TCR form to the SEC. The submission can be anonymous, but only if the whistleblower retains an attorney to represent him or her in connection with the TCR submission. And once an individual becomes a whistleblower, the law provides certain protections against retaliation—including a prohibition against employers discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower in the terms and conditions of employment—because of any lawful act done by the whistleblower.