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Enforcement News: Enforcement News – SEC Awards Over $14 million to Whistleblowers to Start 2022

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  • Posted on: Jan 18 2022

By: Jeffrey M. Haber

The new year is days old, but that has not stopped the Securities and Exchange Commission (“SEC” or “Commission”) from awarding whistleblowers money under the Commission’s whistleblower program. During the past two weeks, the SEC announced that it awarded, in total, more than $14 million to several whistleblowers who provided information and assistance in three enforcement actions – one for “misconduct occurring overseas” and a second where the whistleblower’s assistance “helped the Commission obtain emergency relief to minimize investor losses”.

Since the inception of the program in 2012, the SEC has awarded approximately $1.2 billion to 241 individuals for providing information that led to successful enforcement actions by the SEC and other agencies. 

The first award of 2022 was announced on January 6, 2022 (here). In the announcement, the SEC said that it paid more than $13 million to a whistleblower whose information and assistance prompted the opening of an investigation and significantly contributed to the success of an SEC enforcement action. According to the SEC, “the whistleblower promptly alerted SEC staff to an ongoing fraud and provided extensive assistance to SEC staff by meeting in person and helping the staff understand the mechanics of the fraudulent scheme.” As noted above, “[t]he whistleblower’s information … helped the Commission obtain emergency relief to minimize investor losses.”

Creola Kelly, Chief of the SEC’s Office of the Whistleblower, had the following to say about the whistleblower and the award: “Today’s whistleblower provided significant information that alerted SEC staff to ongoing fraud, which had caused and was likely to continue to cause substantial injury to the financial interests of investors. Whistleblowers who provide information swiftly can not only save SEC staff’s time and resources, but also help minimize potential investor losses.”

The second and third awards were announced on January 10, 2021 (here). According to the SEC, it made two awards, totaling more than $4 million, to whistleblowers who provided information and assistance in two separate covered actions.

In the first order, the SEC issued an award of approximately $2.6 million to one whistleblower. “The whistleblower, who reported internally before reporting to the Commission, provided significant new information during an existing investigation that alerted SEC staff to misconduct occurring overseas, which would have been difficult to detect in the absence of the whistleblower’s information.”

In the second order, the SEC issued approximately $1.5 million to “joint whistleblowers who provided substantial ongoing assistance throughout the course of the investigation that led to the success of the covered action.” According to the SEC, “[t]he joint whistleblowers had multiple communications with SEC staff and provided information about key witnesses.”

Commenting on the award, Ms. Kelly said, “These whistleblowers provided critical information and continued cooperation that helped the agency detect the securities laws violations. These awards highlight the importance of the SEC’s whistleblower program to the agency’s enforcement efforts and to its ability to maximize staff resources.”

Under the whistleblower program, the SEC can pay an award to any individual, or group of individuals, who provide “original information” about a violation of the federal securities laws. Both U.S. citizens and foreign nationals may file whistleblower claims and receive a reward.

To be “original”, the information must be unknown to the SEC and derived from the whistleblower’s independent knowledge or analysis. Whistleblowers who provide “original information” that the SEC uses in furtherance of an enforcement action can recover a reward of between 10% – 30% of the total amount of money collected by the SEC when the monetary sanctions exceed $1 million. 

As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose information that could reveal a whistleblower’s identity.

[A full discussion of the SEC Whistleblower Program can be found on the Firm’s website (here) and on the SEC’s website (here).] 

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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