Enforcement News: Since Inception, Over $1 Billion Awarded to Whistleblowers Under the SEC’s Whistleblower Program

• Posted on: Sep 17 2021

By: Jeffrey M. Haber

On September 15, 2021, the Securities and Exchange Commission (“SEC” or “Commission”) announced (here) that it paid approximately $110 million and $4 million to two whistleblowers whose information and assistance led to successful SEC and related actions. With these awards (here), the SEC’s whistleblower program has now paid more than $1 billion in awards to 207 whistleblowers, including over $500 million in fiscal year 2021 alone. The $110 million award stands as the second-highest award in the program’s history, following the more than $114 million whistleblower award the SEC paid in October 2020 (here) and the over $50 million award paid in June 2020 (here).

The first whistleblower award consists of an approximately $40 million award in connection with an SEC case and an approximately $70 million award arising out of related actions by another agency. According to the SEC, the first whistleblower provided significant independent analysis that substantially advanced the SEC’s and the other agency’s investigations. The SEC said that although the second whistleblower voluntarily provided original information that led to the successful enforcement action, the information was provided to the SEC after the staff had opened an investigation and undertaken significant investigative steps and was much more limited as compared to the information and assistance provided by the first whistleblower.

According to the SEC, it has awarded over $1 billion to 207 individuals since issuing its first award in 2012. As we noted in a prior article (here), Since the start of the summer (i.e., June 2021), the SEC had awarded, in total, approximately $17.8 million to 14 whistleblowers. But that time frame is just a small window into the Commission’s payment of awards over the past fiscal year. Indeed, looking at the amount paid to whistleblowers from the beginning of the fiscal year (i.e., October 2020), the SEC has awarded more than $500 million to whistleblowers under the program, representing more than half of the $1 billion paid to date. 

The comments of SEC officials about the milestone underscore the importance of the whistleblower program to the Commission’s enforcement activities. For example, SEC Chair Gary Gensler said the following: “Today’s announcement underscores the important role that whistleblowers play in helping the SEC detect, investigate, and prosecute potential violations of the securities laws. The assistance that whistleblowers provide is crucial to the SEC’s ability to enforce the rules of the road for our capital markets.”

Gurbir S. Grewal, the Director of the SEC’s Division of Enforcement, echoed Gensler’s sentiments: “The whistleblower program has been instrumental to the success of numerous enforcement actions since it was instituted a decade ago. We hope that today’s announcement encourages whistleblowers to continue to come forward with credible information about potential violations of the securities laws.”

Emily Pasquinelli, Acting Chief of the SEC’s Office of the Whistleblower, further highlighted the important role played by whistleblowers in the Commission’s enforcement regime: “Whistleblowers can play an extraordinary role in helping the SEC ferret out wrongdoing. Whistleblowers may provide critical information based on their own independent analysis that facilitates the SEC’s investigation and the successful resolution of the enforcement action.”

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.