On July 31, 2014, the Securities and Exchange Commission (the “SEC”) announced a $400,000 reward  issued to a whistleblower who reported securities law violations. The SEC stated that the whistleblower  first reported the issue internally at the company. It continued that “[w]hen it became apparent that the  company would not address the issue, the whistleblower came to the SEC in a final effort to correct the  fraud and prevent investors from being harmed.” In June, the SEC announced an award of $875,000 to  be split evenly between two individuals who provided information that helped the SEC bring an  enforcement action. It also bears noting that the Commodity Futures Trading Commission announced in  May its first reward under its whistleblower rules.

The SEC’s Office of the Whistleblower and the related whistleblower rules were implemented in late 2011  pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. Since then, the SEC has  paid rewards to at least eight whistleblowers. The rewards payable to whistleblowers range from 10% to  30% of the money collected by the SEC. Under the rules, the identity of whistleblowers must remain  confidential.

Companies should continue to evaluate their reporting programs. Reporting programs should be  accessible to employees and encourage internal reporting. The most recent whistleblower award,  however, was paid to an employee who did initially report the violation to the company. We also  previously reported that the SEC recently settled its first anti-retaliation enforcement action brought under  the new rules. Thus, companies also need to focus on how they respond to whistleblower reports,  including conducting appropriate investigations, communicating effectively with the whistleblower about  the alleged violation, and ensuring that management is appropriately trained to avoid retaliation claims.