On September 30, 2013, the last day of the fiscal year, the SEC awarded more than $14 million to a tipster who provided details that led to a substantial recovery of investments in an enforcement action. Though only the third SEC whistleblower award since the bounty program was started, our readers know this award confirms a long-held prediction that larger awards were just a matter of time.
Latest Award Dwarfs Prior SEC Payouts
The SEC’s first whistleblower award in August 2012 was $50,000. In August and September of 2013, the SEC gave awards in a sham hedge fund case that is expected to hover around $125,000. This third award is much more substantial. As SEC Chair Mary Jo White stated: “Our whistleblower program already has had a big impact on our investigations by providing us with high quality, meaningful tips. We hope an award like this encourages more individuals with information to come forward.”
Why Is The Payout So Big?
The SEC charged three former Bank of the Commonwealth executives with violations of antifraud, reporting, recordkeeping, internal controls, deceit of auditors, and Sarbanes-Oxley certification provisions of federal securities law for misrepresenting millions of dollars in losses and obscuring the bank’s loan portfolio from November 2009 to August 2010. The September 30 Order noted that the whistleblower’s original information led to successful enforcement of the SEC whistleblower regulations. It emphasized that the sizeable award to the anonymous tipster recognized (1) the significance of the information that the Claimant provided to the SEC; (2) the manner in which Claimant assisted the SEC in the action; and (3) the enforcement interest in deterring violations by granting awards.
It is quite likely that this award will lead to an influx of additional tips. Will the SEC have sufficient resources to handle it? Will the quality of tips rise or fall? Will employers take heed and step-up their compliance programs and create incentives for internal reports? Is this an anomaly or are awards of this magnitude around the corner? Stay tuned.