Utah Whistleblower Hotline

SEC Office of the Whistleblower chomping at the bit to pay “big awards”

SEC Office of the WhistleblowerTwo distinct themes have emerged from the recent whistleblower awards issued by the SEC Office of the Whistleblower:

1) The SEC’s Whistleblower Office will, if warranted, pay big awards; and

2) The faster a potential whistleblower provides the SEC with information, the higher the award will be.

SEC Office of the Whistleblower Has Paid $57 Million to Whistleblowers Since 2011

So far, the SEC Office of the Whistleblower has paid more than $57 million to 26 whistleblowers since the SEC instituted its whistleblower program in 2011.  The largest award paid to date by the SEC Office of the Whistleblower is $30 million, which came in 2014.  Another award paid a whistleblower more than $14 million in 2013.  In 2014, the SEC said it received a record 4,000 whistleblower tips, an 8% increase from 2013.  The most common categories for tips, complaints or referrals reported by whistleblowers in 2015 were corporate disclosure and financials (17.5%), offering fraud (15.6%) and manipulation (12.3%).  The SEC paid more than $37 million in awards to eight whistleblowers in 2015.

Under the SEC’s whistleblower program, individuals may be eligible for an award “when they voluntarily provide the SEC with unique and useful information that leads to a successful enforcement action,” the SEC said.

Whistleblower awards generally range from 10% to 30% of the total amount recovered in the SEC enforcement action, so long as the amount recovered exceeds $1 million.  All whistleblower payments are made from an “investor protection” fund, which was established by Congress and financed entirely via the monetary sanctions imposed on securities law violators, and no money that is paid to the whistleblowers by the SEC Office of the Whistleblower is taken or withheld from harmed securities investors.  Additionally, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

Sean McKessy, Chief of the SEC Office of the Whistleblower, said of the whistleblower program:

We’re seeing a significant uptick in whistleblower tips over prior years, and we believe that’s attributable to increased public awareness of our program and the tens of millions of dollars we’ve paid to whistleblowers for information that helped us bring successful enforcement actions.

SEC Awards More to “Faster” Whistleblowers

In addition to the big awards the SEC Office of the Whistleblower is willing to pay, the SEC has said that an individual’s award will be higher if the individual provides the SEC with information more quickly.  Case in point is a recent $2 million whistleblower award paid to three individuals.  Of that $2 million, the SEC Office of the Whistleblower paid approximately $1.8 million to one individual, while the other two were only paid $65,000 each.

The SEC has explained, albeit vaguely, that the significant difference in the awards paid the three whistleblowers in the above case was predicated on the speed with which the information was provided to the SEC Office of the Whistleblower by the three individuals.  The individual who reported the information the fastest received the $1.8 million award, while the other, slower reporting individuals only received $65,000 each.  The whistleblower that was paid the $1.8 million “voluntarily provided original information that prompted the SEC to open its investigation” while the other two whistleblowers provided information to the SEC “after the investigation started.”  The SEC further observed: (1) the first whistleblower “continued to provide valuable information throughout the investigation”; and (2) the “joint contribution of” the other whistleblowers was “substantially less important than that of” the first whistleblower.

SEC Relying on Company Outsider Tips More and More

Another recent award from the SEC Office of the Whistleblower suggests that the SEC is becoming increasingly inclined to rely on tips from company outsiders.  In that case, the SEC paid a whistleblower more than $700,000 “who conducted a detailed analysis that led to a successful SEC enforcement action.”

“The voluntary submission of high-quality analysis by industry experts can be every bit as valuable as first-hand knowledge of wrongdoing by company insiders,” said Andrew Ceresney, Director of the SEC’s Enforcement Division.  “We will continue to leverage all forms of information and analysis we receive from whistleblowers to help better detect and prosecute federal securities law violations.”

Sean McKessy added:

This award demonstrates the Commission’s commitment to awarding those who voluntarily provide independent analysis as well as independent knowledge of securities law violations to the agency.  We welcome analytical information from those with in-depth market knowledge and experience that may provide the springboard for an investigation.

The SEC’s recent awards highlight the fact that the SEC will not only pay big awards to whistleblowers, but that the awards will be larger for those whistleblowers that blow the whistle the fastest, and regardless of whether they work for the company they blow the whistle on.

2015 Report to Congress from SEC Office of the Whistleblower

The SEC recently reported in its 2015 Annual Report to Congress that, to date, “almost half of the award recipients [have been] current or former employees of the company on which they reported information of wrongdoing.”  However, that means the remaining whistleblower award recipients were company outsiders, or individuals who obtained information of possible misconduct by virtue of being “victims of the fraud, professionals working in a related industry, or [having] a personal relationship with the alleged wrongdoer.”  The SEC also said that “[t]here is no requirement under the Whistleblower Rules that an individual must be a current or former employee to be eligible for an award.”

If you or someone you know has information regarding a possible securities law violation, please contact our whistleblower team via email or by phone, (801) 323-5000, regarding a possible consultation.  Given that an individual’s potential share of an SEC whistleblower award may be determined by the speed in which it is reported, you should not delay in reporting the potential wrongdoing to the SEC.  Additionally, the SEC Office of the Whistleblower has shown a willingness to pay whistleblower awards to company “outsiders.”  As a result, even if you do not work for the company that you suspect of wrongdoing, you can still blow the whistle, and may be entitled to a significant whistleblower award.

Photo Cred.: reuters.com