Earlier this week, the SEC announced a more than $20 million whistleblower award “to a whistleblower who promptly came forward with valuable information that enabled the SEC to move quickly and initiate an enforcement action against wrongdoers before they could squander the money.” The $20 million award announced this week is the third-largest award since the SEC’s Office of the Whistleblower began rewarding whistleblowers in 2012, and adds to the historic total of awards in FY2016. The SEC has awarded more than $57 million to whistleblowers in FY2016 alone, and over $130 million in total during the program’s existence.
Jane Norberg Says Sizeable Whistleblower Awards Should “Encourage Whistleblowers Everywhere”
Jane Norberg, chief of the SEC’s Office of the Whistleblower, said of the most recent award:
This whistleblower alerted us with a valuable tip that led to a near total recovery of investor funds. Sizeable awards like this one should encourage whistleblowers everywhere that there are real financial incentives to promptly reporting potential securities law violations to the SEC.
SEC Issues Larger Award Than Recommended to One Claimant, But Denies Award to Two Others
According to the SEC’s order, Claimant 1 was approved to receive an award, but two other claimants were denied any award arising out of the same matter. In June 2014, the SEC Claims Review Staff issued a preliminary determination that recommended that Claimant 1 receive an award from the monetary sanctions collected in the enforcement action. The SEC chose to depart upward from the Claims Review Staff’s recommended award, awarding Claimant 1 more than $20 million. “Claimant 1 enabled the Commission to move quickly to shut down [the wrongdoer] and to obtain a near total recovery of investors’s funds,” the order says.
The other two claimants did not provide the SEC with what it calls “original information,” the order says. Information supplied to the SEC only counts as original information if it is disclosed to the SEC after the he enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”). The information provided to the SEC by Claimants 2 and 3 in this case came prior to the enactment of the Dodd-Frank Act. As a result, such information is not original information as contemplated by the Exchange Act. Likewise, the information provided by Claimant 2 after the enactment of the Dodd-Frank Act was also deemed not to be original information on account of the fact that the information was already known to the SEC, or did not lead to the successful enforcement action.
A Historic Year for SEC Whistleblower Awards
As noted, the $20 million whistleblower award announced this week only adds to the historic total awarded by the SEC in FY2016. The day after the SEC announced its most recent award, the SEC issued its annual report to Congress regarding its whistleblower program. In a message to Congress at the outset of the report, Jane Norberg wrote:
Fiscal Year (FY) 2016 was historic for the SEC’s whistleblower program. In August 2016, the SEC announced that its awards to whistleblowers since the beginning of the program have surpassed the $100 million mark. In the program’s short term of existence, the SEC already has awarded more than $111 million to 34 whistleblowers whose information and cooperation assisted the agency in bringing multiple successful Commission enforcement actions and related actions. The total award amount demonstrates the invaluable information and assistance whistleblowers have provided to the agency and underscores the program’s extraordinary impact on the agency’s enforcement initiatives.
In FY 2016 alone, the agency issued awards totaling over $57 million—higher than all award amounts issued in previous years combined. The ten highest awards issued by the SEC to whistleblowers have each totaled more than $1 million, with the largest exceeding more than $30 million. Six of the ten highest whistleblower awards were made in FY 2016.
Norberg further noted that the awards given to whistleblowers have had a “transformative effect” on the SEC’s enforcement effort as a whole. Norberg says this transformative effect is evidenced “by the hundreds of millions of dollars that have been returned to investors.” According to Norberg:
Whistleblowers’ Tips Have Led to $584M in Financial Sanctions
The information and assistance provided by the 34 whistleblowers who received awards under the program led to successful enforcement actions in which over $584 million in financial sanctions was ordered, including more than $346 million in disgorgement of ill-gotten gains and interest. Of the 34 whistleblowers who have received awards, about 60% provided original information that initiated an investigation while the remaining 40% gave new information that significantly contributed to an existing investigation. About 65% of the 34 whistleblowers who received awards were employees of the company on which they reported and about 80% of those initially raised their concerns internally before reporting to the Commission.
The SEC says it received more than 4,200 tips in FY2016, which is a 40% increase in tips since FY2012. The SEC says that it “believe[s] the continued payment of significant awards, like those made this past year, will continue to incentivize company insiders, market participants, and others with knowledge of potential securities law violations to come forward and report their information to the agency.”
The Origins of the SEC’s Whistleblower Office and How Awards Work
The Dodd-Frank Act created the SEC’s Office of the Whistleblower with its passage in 2010. The Dodd-Frank act amended the Exchange Act by, among other things, adopting Section 21F. Section 21F directs the SEC to make monetary awards to individuals who voluntarily supply the Commission with original information that leads to successful commission enforcement actions resulting in monetary sanctions of $1 million or more and successful related actions. The Investor Protection fund pays all whistleblower awards. The Investor Protection fund was created to ensure whistleblower payments do not lessen the amount that victims of securities law violations can recover. The fund has a current balance of $368 million.
SEC Required to Protect Identity of Whistleblowers
The SEC protects the confidentiality of those who provide information to the Commission under the Dodd-Frank Act. Furthermore, the SEC will not disclose any information the Commission feels might directly or indirectly reveal the individual’s identity. Whistleblower awards under the Dodd-Frank Act can range from 10 to 30 percent of the total amount collected when the amount collected exceeds $1 million.
Contact Our Whistleblower Attorney Team Today
If you or someone you know has information regarding possible violations of securities laws by your employer, please contact our whistleblower attorney team today for a consultation. You can contact our whistleblower attorney team via email at kporter@chrisjen.com, or by phone at 801-323-5000, or through our contact form.
Photo Cred.: twitter.com
Copyright 2016