On April 5, 2018, the Securities and Exchange Commission (“SEC”) announced a whistleblower award of more than $2.2 million in connection with a report of misconduct. The whistleblower, a former company insider, first reported information to a federal agency other than the SEC, which in turn referred the matter to the SEC, which promptly opened an enforcement investigation. Subsequently, within 120 days of the original reporting to the other federal agency, the whistleblower reported the same information directly to the SEC. The resulting SEC enforcement action resulted in monetary sanctions, and the whistleblower received a percentage of the sanctions as an award. Despite initially reporting to another federal agency, the whistleblower received an award because he or she reported the same information to the SEC within 120 days and subsequently cooperated with the enforcement investigation.
The award is the first under the safe harbor found in 17 C.F.R. § 240.21F-4(b)(7) (the “Safe Harbor Provision”). Typically, in order to be treated as a whistleblower under 17 C.F.R. § 240.21F, an individual has to report information to the SEC first. As previously covered by Shearman & Sterling, the Supreme Court recently confirmed this understanding in Digital Realty Trust, Inc. v. Somers, where it held in a 9-0 decision that the definition of whistleblower throughout 17 C.F.R. § 240.21F is “any individual who provides . . . information relating to a violation of the securities laws to the Commission.” Shearman & Sterling LLP: Government/Regulatory Enforcement, Supreme Court Finds Dodd-Frank Does Not Protect Internal Whistleblowers (Feb. 27, 2018). However, under the Safe Harbor Provision, a whistleblower’s initial reporting to another federal agency does not preclude relief from the SEC, provided the whistleblower reports the same information to the SEC within 120 days and otherwise meets the criteria for whistleblower status.
In a press release announcing the order, Jane Norberg, Chief of the SEC’s Office of the Whistleblower, noted that “[w]histleblowers, especially non-lawyers, may not always know where to report, or may report to multiple agencies. This award shows that whistleblowers can still receive an award if they first report to another agency, as long as they also report their information to the SEC within the 120-day safe harbor period and their information otherwise meets the eligibility criteria for an award.”
This award, alongside other significant recent whistleblower awards, highlights the SEC’s increased focus on incentivizing reporting and protecting whistleblowers. Shearman & Sterling LLP: Government/Regulatory Enforcement, Record-Breaking Whistleblowing Awards Continue Incentives to Report Misconduct to the SEC (Mar. 27, 2018). Such large awards should continue to grab the attention of potential whistleblowers and incentivize them to tell the SEC what they know, even if they have already told someone else.