The Securities and Exchange Commission (SEC) has announced that an unidentified whistleblower, “who voluntarily provided original information” to the SEC “that led to the successful enforcement” action against an undisclosed company, has been awarded a record $14 million. According to the SEC’s October 1 announcement, the award “recognizes the significance of the information that the Claimant provided to the Commission, the assistance the Claimant provided in the Commission action, and the law enforcement interest in deterring violations by granting awards.”
This is the third such award the SEC has made under the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) since the statute’s passage in 2010. The others were in the amounts of $50,000 and a little more than $25,000.
The latest record award is no surprise to employers and their lawyers who have been monitoring the SEC’s actions under the DFA’s “bounty” provisions. The bounty provisions authorize the SEC to award employee whistleblowers between 10 percent and 30 percent of monetary sanctions that exceed $1 million if the SEC determines that the whistleblower’s information was high-quality, based on original information, and led to a successful SEC enforcement action. As expected, the bounty provisions create a significant incentive for whistleblowers to supply information about potential securities law violations directly to the SEC.
The SEC’s DFA-required final rule, published in August 2011, defines a whistleblower as anyone who reports to the SEC information that relates to a possible violation of the federal securities laws (including any rules or regulations thereunder) that has occurred, is ongoing, or is about to occur. Anti-retaliation provisions under that fairly controversial final rule further permit disclosures by whistleblowers who report to persons or governmental authorities other than the SEC, despite explicit statutory language defining “whistleblower” as an individual who provides information “to the Commission.” Whistleblower identity under the DFA is protected from public disclosure.
We expect additional awards will be made as the SEC’s Office of the Whistleblower expands its reach. Coming on the day of a government shutdown, the SEC’s announcement was quick to note that the $14-millon award is from a separate fund previously established by the DFA and did not come from the agency’s annual appropriations or reduce amounts paid to harmed investors.
Employers should continue to evaluate and update their corporate internal reporting mechanisms or whistleblower “hotlines” and effectively manage internal reporting resources. While reporting to the SEC ultimately may be warranted in some situations, employers with strong reporting availability for employees will have the opportunity to be involved and to affect the course of events. To that end, some employers have created their own whistleblowing report reward system to encourage would-be whistleblowers to use internal systems rather than going to the government. Employees of organizations that deliver on their promises are less likely to resort to the SEC.