Why it matters
The Securities and Exchange Commission (SEC) awarded its third-highest whistleblower award last month, providing $20 million to a whistleblower "who promptly came forward with valuable information that enabled the SEC to move quickly and initiate an enforcement action against wrongdoers before they could squander the money." The agency used the sizable award to encourage other whistleblowers to come forward and report potential securities law violations. Since the creation of the SEC's whistleblower program in 2012, the agency has handed out more than $130 million, including a record-setting award of $30 million in September 2014 and the second-highest amount of $22 million, awarded this summer.
When the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in July 2010, the new law mandated the creation of a whistleblower program operated by the SEC. Once the agency established final rules in 2011, the Office of the Whistleblower paid out its first award in 2012.
Since then, the SEC has paid out more than $130 million to whistleblowers. Whistleblower awards can range from 10 to 30 percent of the money collected by the SEC when the monetary sanctions exceed $1 million. This year has been an especially busy period for the Office of the Whistleblower, which has awarded roughly $75 million so far, including seven of the top ten largest payments to whistleblowers, with the second-highest award of $22 million in June and most recently the third-highest award of $20 million.
In that case, the agency said the award was justified because the whistleblower "promptly came forward with valuable information that enabled the SEC to move quickly and initiate an enforcement action against wrongdoers before they could squander the money."
The SEC did not disclose any information that would have revealed the whistleblower's identity, but a partially redacted order for the action revealed that the whistleblower was originally granted a much lower amount. The whistleblower contested the preliminary determination, and the agency changed course, determining an award of $20 million was appropriate.
"[The claimant's] assistance to the Commission given the specific facts and circumstances of this case merits a [redacted] upward adjustment to the award recommendation in the Preliminary Determination," according to the order. "Put simply, by promptly coming forward with information about the Defendants' wrongdoing, and by subsequently alerting the Commission about [redacted], [the claimant] enabled the Commission to move quickly to shut down the [redacted] and to obtain a near total recovery of investors' funds—in excess of [redacted]—before the Defendants could squander those monies."
Two other claimants were not as lucky, with the SEC affirming the preliminary determination that they should not receive an award because "neither provided original information that led to the success of the Covered Action."
The SEC leveraged the $20 million award to urge other whistleblowers to step forward. "This whistleblower alerted us with a valuable tip that led to a near total recovery of investor funds," Jane Norberg, chief of the SEC's Office of the Whistleblower, said in a statement. "Sizeable awards like this one should encourage whistleblowers everywhere that there are real financial incentives to promptly reporting potential securities law violations to the SEC."
To read the SEC's partially redacted order, click here.