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Enforcement News: The SEC Whistleblower Program Does Not Take The Summer Off

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  • Posted on: Aug 9 2021

Whistleblowers play an important role in detecting and stopping securities laws violations. They do so often by risking their career and reputation. For this reason, whistleblowers may receive a monetary award for bringing to the attention of the SEC credible information about possible securities fraud and other violations of the securities laws, including the Foreign Corrupt Practices Act. 

The SEC derives its authority to reward whistleblowers from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). 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).] 

Since the start of this year’s summer, the SEC has awarded, in total, approximately $17.8 million to 14 whistleblowers. In today’s article, we look at the two most recent announcements of whistleblower awards.

On August 2, 2021, the SEC announced (here) that it awarded more than $4 million to four whistleblowers who provided information and assistance in two separate enforcement proceedings.

In the first order (here), the SEC awarded more than $2 million to a whistleblower who provided valuable information that resulted in the SEC initiating an investigation, as well as ongoing assistance that included participating in multiple interviews and identifying key individuals and entities. The SEC also awarded more than $150,000 to another whistleblower, whose information prompted the SEC to expand its investigation into other alleged conduct at the subject company.

In the second order (here), the SEC awarded more than $1.1 million to a whistleblower who reported misconduct internally and was the first to alert the SEC to the violations. The SEC also awarded another whistleblower more than $500,000. While the second whistleblower’s information was considered important to the Commission, the first whistleblower’s information was deemed more significant as it was broader and more timely submitted.

On August 6, 2021, the SEC announced (here) that it awarded more than $3.5 million to three individuals who provided information about violations of the securities laws in two separate enforcement proceedings.

In the first order (here), the SEC awarded approximately $2 million to a whistleblower whose information and assistance led to a successful SEC enforcement action.  The whistleblower alerted the SEC to an ongoing fraud, prompting the opening of an investigation.  The whistleblower also participated in multiple voluntary interviews and provided documents and additional information that saved the SEC time and resources. 

In the second order (here), the SEC awarded one whistleblower approximately $1 million and a second whistleblower approximately $500,000.  While both whistleblowers independently provided information that assisted the SEC in an existing investigation, the whistleblower receiving the larger award provided information and cooperation that was deemed to be more impactful to the overall success of the case. 

Commenting on the awards announced on August 6, 2021, Emily Pasquinelli, Acting Chief of the SEC’s Office of the Whistleblower, said the following: “Whistleblowers can provide a wealth of information and ongoing assistance that helps the SEC bring enforcement actions quicker and more efficiently. Today’s whistleblowers not only stepped forward to report suspicious conduct, but also continued to provide critical additional assistance.” These comments aptly summarize the role of whistleblowers in the enforcement of the securities laws.

Since issuing its first award in 2012, the SEC has awarded approximately $950 million to 193 whistleblowers. 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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