On Monday, September 22, the Securities and Exchange Commission (“SEC”) announced that it expects to award a record-breaking $30 million to a foreign whistleblower. The award will be the largest in the history of the SEC Whistleblower Program, more than doubling the previous high of $14 million. It also is the fourth award to be issued to a whistleblower living in a foreign country.
The whistleblower in the case was a foreign national who came forward with information about an ongoing fraud that would have been very difficult for the SEC to detect otherwise. Although the sheer value of the award is unprecedented for the SEC Whistleblower Program, the award is actually below the average percentage amount awarded to other whistleblowers. According to the SEC Order, the whistleblower unreasonably delayed in reporting the wrongdoing, warranting a downward adjustment of the award.
There can be no mistake that the SEC hopes the magnitude of its most recent award will incentivize future whistleblowers to come forward. As Andrew Ceresney, Director of the SEC’s Division of Enforcement, explained, “This record-breaking award sends a strong message about our commitment to whistleblowers and the value they bring to law enforcement.” Additionally, the SEC believes this award will cement the international reputation of its Whistleblower Program. According to Sean McKessy, Chief of the SEC’s Office of the Whistleblower, the award “shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice. Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”
Although the SEC Whistleblower Program is only three years old, it has experienced consistent yearly growth since its inception in 2012. The SEC issued only one whistleblower award in fiscal year 2012, compared with four in fiscal year 2013 and nine thus far in fiscal year 2014. The international reach of the Program has also grown. In its last annual report, the SEC stated that 11 percent of its tips had come from overseas whistleblowers, and that number is expected to increase.
With respect to foreign whistleblowers, the SEC takes the position that “there is a sufficient U.S. territorial nexus whenever a [whistleblower’s] information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws.” According to the SEC, “it makes no difference whether, for example, the [whistleblower] was a foreign national, the [whistleblower] resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas.” In fact, the SEC Whistleblower Program offers anonymity and the potential for large awards for the whistleblower, benefits that many foreign securities and financial regulators do not yet offer.
The increasingly large awards provided under the SEC Whistleblower Program have attracted the attention of law firms specializing in False Claims Act “qui tam” lawsuits. Under the False Claims Act, a relator reporting false claims against the U.S. government is entitled to receive between 15 and 25 percent of the amount recovered by the government through the qui tam action, and in fiscal year 2013 alone, the government recovered $2.9 billion from qui tam cases, with whistleblowers recovering $345 million.
Given the growth of the SEC Whistleblower Program, both in terms of award value and geographic reach, it has become increasingly important for companies to ensure that they have vigorous compliance programs in place to prevent and detect potential securities violations, and to mitigate penalties that may result from inadvertent violations. Additionally, this award comes on the heels of the SEC’s first whistleblower award to a compliance professional, further emphasizing the need for companies to ensure that they have effective internal reporting and response procedures in place to promptly address any reports of suspected wrongdoing.