The U.S. Securities Exchange Commission (SEC) has made its first award to an employee-informant pursuant to the whistleblower provisions of the 2010 Dodd-Frank Act (DFA). According to the SEC, a whistleblower’s assistance led to courtordered sanctions against an organization totaling more than $1 million, of which $150,000 has been collected thus far. The informant has been paid $50,000 to date and stands to gain more as the SEC collects additional money. The informant’s award derives from the DFA’s so-called “bounty” provisions. These authorize the SEC to award employee whistleblowers between 10%-30% of a sanction that exceeds $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.
According to the SEC’s announcement, the whistleblower provided information and cooperation of the sort it hoped the bounty program would attract. In accordance with the DFA’s anti-retaliation and identity protection provisions, the SEC did not disclose the whistleblower’s identity. The SEC’s release is silent as to whether the sanctioned organization had an effective internal reporting (“hot-line”) process, whether the employee reported the matter internally, or whether the employee bypassed any internal reporting process at the organization.
The SEC states that since it launched this whistleblower program in August 2011, it has received approximately eight tips per day. The Chief of the SEC’s Whistleblower Office stated: “The fact that we made the first payment after just one year of operation shows that we are open for business and ready to pay people who bring us good, timely information.”
This latest development illustrates dramatically that employees are becoming increasingly aware of the DFA’s whistleblower provisions, and are not reluc-tant to invoke them. At an estimated 2,080 tips per year, employees are providing a steady stream of information to the SEC about the alleged misdeeds (real or perceived) of organizations subject to the SEC’s reach. Employing organizations having effective internal reporting and investigative mechanisms, and credibility with employees about their willingness to protect informants from retaliation, stand a better chance of encouraging employees to bring complaints to their attention rather than to the SEC’s. Nevertheless, with its substantial award provisions, the bounty program will be a challenge to all organizations.