Waiving one of the whistleblower award eligibility requirements, the Securities and Exchange Commission recently awarded more than $400,000 to a whistleblower who reported a fraud to the SEC after the company failed to address the issue internally.
Notably, the Claims Review Staff initially recommended that the whistleblower’s claim be denied, as the information did not appear to be “voluntarily” provided under the definition of Rule 21F-4(a)(ii) because the information was provided after an inquiry by a self-regulatory organization (“SRO”) into the matter. However, after the whistleblower provided a detailed chronology of events, the Commission was persuaded that the whistleblower had engaged in “diligent efforts to correct and to bring to light the underlying misconduct” and determined that there were “materially significant extenuating circumstances,” such that it “was in the public interest and consistent with the protection of investors” to waive the “voluntary” requirement. In ordering the award, the Commission acknowledged that the whistleblower’s interactions with the SRO occurred prior to the SEC’s proposal or adoption of Rule 21F-4(a), which created incentives for whistleblowers to report original information to the SEC before they are approached by an SRO.
In determining the award amount, the Commission explained that the amount reflects the significance of the information that the whistleblower provided to the Commission, the efforts the whistleblower made to protect investors and report the violation internally, and the personal and professional injuries that the whistleblower suffered in raising the issues.
In a press release concerning the award, Sean McKessy, Chief of the SEC’s Office of the Whistleblower, recognized the whistleblower’s efforts to address the issue internally before reporting to the SEC, stating:
The whistleblower did everything feasible to correct the issue internally. When 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. This award recognizes the significance of the information that the whistleblower provided us and the balanced efforts made by the whistleblower to protect investors and report the violation internally.
This award and the Commission’s willingness to waive certain eligibility requirements to incentivize whistleblower claims send a strong message to companies about the importance of having robust internal reporting procedures and of properly investigating and taking necessary steps to address reported issues.