On September 22, 2014, the Securities and Exchange Commission (SEC) announced its largest-ever whistleblower award, which is expected to be between $30 to $35 million.1 The previous high for an SEC whistleblower award was for more than $14 million in October 2013.
The SEC created its whistleblower program as required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Under the SEC’s whistleblower program, it can pay awards to individuals who provide information about possible securities fraud if that information leads to an SEC judicial or administrative action resulting in monetary sanctions exceeding $1 million; the information is provided voluntarily; and the information is original, meaning derived from the independent knowledge or analysis of the whistleblower and not already known to the SEC. Awards can range between 10 and 30 percent of the amount collected, with the SEC having discretion on the amount.
As is common to keep the whistleblower’s identity anonymous, the SEC revealed few details about this whistleblower or the underlying action, except that the whistleblower lives overseas and that the related violation preceded Dodd-Frank’s becoming law. Although the percentage of the recovery was not revealed, the SEC’s order indicates that it was on the low side of the 10 to 30 percent range. While noting the significance of the information and assistance that the claimant provided, the SEC found that the whistleblower unreasonably delayed in reporting the violations. This delay reduced the percentage recovery in what appears to have been a very significant, successful SEC enforcement action. The whistleblower had unsuccessfully argued in its response to the SEC’s preliminary determination that its award was below the average percentage awarded to other successful claimants to date (the average percentage recovery reported is estimated at 24 percent).
The SEC made its first whistleblower award in its 2012 fiscal year, followed by four awards in fiscal year 2013, and nine awards so far this fiscal year. While the whistleblower program started slowly, the large awards over the last 12 months, together with increased tips, indicate that the program will continue become an increasingly integral part of the SEC’s enforcement efforts. Last year, the SEC reported receiving more than 3,200 tips from whistleblowers in all 50 states, the District of Columbia, three U.S. territories, and 55 foreign countries.