The SEC this week suggested that it will limit whistleblower awards – or so-called “bounties” – in circumstances where whistleblowers wait before coming forward with information.
In a recent decision, a whistleblower (a former investment firm employee) had tipped the agency with detailed descriptions of alleged misconduct and the identities of individuals involved following his or her departure from the company. The SEC was successful in its enforcement action against the firm. The whistleblower was paid an award of $325,000. However, the SEC stated in its press release that the award could have been higher had the individual come forward earlier:
Corporate insiders who become aware of securities law violations are encouraged to come forward without delay in order to prevent misconduct from continuing unabated while investors suffer more harm.
The decision and release stress the significant incentives and protections afforded to whistleblowers, and are a further indicator of the importance the SEC places on the bounty programs in identifying and prosecuting corporate malfeasance.
In another decision released this week, a bounty of over $2.3 million was awarded to a former employee of NetCracker Technology Corp. after he filed a suit under the U.S.’s False Claims Act against NetCracker and Computer Sciences Corp. The whistleblower provisions of the False Claims Act permit private parties to file suit on behalf of the United States for false claims and obtain a portion of the government’s recovery.
As Risk and Crisis Management has recently discussed, the Ontario Securities Commission is currently in the process of implementing a bounty system, offering a “whistleblower reward” to individuals who report and submit to the OSC information on serious securities or derivatives related misconduct. In the U.S., the SEC’s whistleblower program has paid more than $54 million to 22 whistleblowers since its inception in 2011. Companies listed on major US exchanges, including Canadian corporations, are required to maintain a whistleblower program.