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Enforcement News: SEC Whistleblower Program Makes Four Awards To End Record-Setting Fiscal Year

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  • Posted on: Oct 2 2020

Whistleblowers often risk career and reputation to report fraud or other illegal conduct. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) to, among other things, promote compliance with the federal securities laws. The Dodd-Frank Act contains whistleblower provisions that authorize the Securities and Exchange Commission (“SEC” or “Commission”) to pay cash rewards to whistleblowers who voluntarily provide the SEC with timely and credible information about securities fraud and other violations of the securities laws, including the Foreign Corrupt Practices Act.

The Dodd-Frank Act enables the SEC to 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).] 

On September 30, 2020, the SEC announced that it awarded almost $5 million to four whistleblowers who submitted tips under the SEC’s whistleblower program. Each of the whistleblowers provided material information that alerted the Commission to the alleged violation of the securities laws and resulted in successful enforcement action. For the fiscal year, the SEC made 39 individual awards of approximately $175 million to whistleblowers under the program, more than in any prior fiscal year. 

In the first order (here), the SEC awarded a whistleblower nearly $2.9 million for alerting the Commission to hard-to-detect violations.  According to the SEC, the whistleblower provided critical information and supporting evidence that conserved the agency’s time and resources.

In the second order (here), the SEC awarded a whistleblower, a former company insider, more than $1.7 million. According to the SEC, the whistleblower provided extensive and ongoing assistance to the SEC’s investigative team over the course of the investigation.

In the third order (here), the SEC awarded two whistleblowers nearly $400,000 for jointly providing a tip and giving continuing assistance during the course of the investigation, including meeting with staff and providing detailed information that helped them understand key documents and identify witnesses. According to the SEC, the whistleblowers also internally reported their concerns and suffered personal hardships as a result of the reporting.

“Today marks the end of a record-setting year for the whistleblower program. We’ve made significant strides to further streamline and accelerate the evaluation of claims under the rules, substantially increasing the rate at which whistleblower claims are evaluated and awards are issued,” said Stephanie Avakian, Director of the Division of Enforcement. “We remain committed to rewarding the valuable contributions of whistleblowers in a timely and efficient manner.”

“The awards issued in the last month demonstrate the variety and breadth of tips received from whistleblowers,” added Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  “Award recipients in the last month include company outsiders who provided independent analysis, international whistleblowers who shone a light on hard to detect overseas conduct, and company insiders who provided critical information and substantial assistance that helped the Commission better protect investors and the marketplace. And today, the four individuals awarded each provided the tip that sparked the opening of the case.”

The SEC has awarded almost $562 million to 106 individuals since issuing its first award in 2012. All whistleblower awards are paid from an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. Under the program, no money is taken or withheld from investors harmed by the violations of law to pay whistleblower awards.

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