In the first week of June, the SEC issued three separate whistleblower awards to individuals who each voluntarily provided the Commission with original information that led to a successful enforcement action.

Key Takeaways

• Whistleblowers received awards for $1 million, $300,000 and 23% of the sanctions collected
• Two of the whistleblowers’ disclosure caused the SEC to open investigations while the third whistleblower provided new and helpful information
• Through the SEC Whistleblower Program, qualified whistleblowers are eligible to receive awards of 10-30% of the funds collected in the enforcement action connected with their disclosure

In the first week of June, the U.S. Securities and Exchange Commission (SEC) issued three separate whistleblower awards. Each awarded whistleblower voluntarily provided the SEC with original information that led to a successful enforcement action.

Through the SEC Whistleblower Program, qualified whistleblowers are eligible to receive awards of 10-30% of the funds collected by the SEC in the enforcement action connected with their disclosure. The SEC weighs a number of different factors to determine the exact percentage to award an eligible whistleblower.

Whistleblowers who are represented by an attorney may blow the whistle anonymously to the SEC. As part of its commitment to protecting the confidentiality of whistleblowers, the SEC does not reveal any identifying information about award recipients, including which enforcement action they contributed to the success of.

Whistleblower whose Disclosure Opened Investigation Awarded $1 Million

On June 3, the SEC issued an award order granting a $1 million award to a whistleblower whose disclosure caused the SEC to open an investigation which resulted in a successful enforcement action.

According to the SEC, the whistleblower “provided additional assistance during the Investigation through in-person and telephonic interviews to identify relevant witnesses and documents for Commission staff” and “the charges in the Covered Action were based, in part, on [the whistleblower’s] information.”

Culpable Whistleblower Awarded $300,000

On June 4, the SEC granted an approximately $300,000 whistleblower award whose disclosure caused the SEC to open an investigation which resulted in a successful enforcement action.

According to the SEC, the whistleblower’s “assistance was extensive and conserved Commission resources – they continued to provide key documents and useful background information throughout the investigation.” The SEC also notes that the law-enforcement interest in the case was “particularly high” because the whistleblower uncovered misconduct that “might otherwise have gone undetected.”

Under SEC Rule 21F-6(c), there is a presumption that the statutory maximum of 30% will be awarded in cases where the award will be for less than $5 million and there are no negative factors. In this case, however, the SEC determined that this presumption did not apply because the whistleblower was “culpable for the underlying conduct.”

Whistleblower Granted a 23% Award after SEC Reconsiders Preliminary Recommendation

On June 4, the SEC issued a whistleblower award granting a whistleblower 23% of the sanctions collected in the enforcement action which their disclosure contributed to the success of.

According to the SEC, the whistleblower “provided new and helpful information that assisted with both the Examination and subsequent Investigation into Respondent” and “provided ongoing assistance during the Investigation, including participating in a voluntary interview with Commission staff.”

The whistleblower’s information “assisted EXAMS staff in formulating additional requests for information from Respondent, the results of which helped support findings included in a referral to the Division of Enforcement,” according to the SEC.

The SEC also notes that the whistleblower repeatedly raised their concerns internally and “suffered significant hardships as a result.” However, the whistleblower also “unreasonably delayed reporting to the Commission for over twenty-one months,” according to the SEC.

In the award order, the SEC explains that an Initial Preliminary Determination by the agency recommended that the whistleblower receive an award of 28%. This Determination was not contested by the whistleblower, but the Commission received new information from EXAMS “that indicated that, contrary to the stated bases for the CRS’s Initial Preliminary Determination, [the whistleblower’s] tip did not cause staff to open the Examination.”

Thus, the SEC revised its Preliminary Determination to recommend that the whistleblower receive an award of 23%. The whistleblower contested this determination on the grounds that the whistleblower program rules do not allow the SEC to revisit a Preliminary Determination after it is uncontested. The whistleblower also argued that “reducing [their] award ‘after the fact and based on contradictory testimony’ will threaten the long-term programmatic interests of the whistleblower program.

The SEC found no merit in the whistleblower’s claims that the Revised Preliminary Recommendation was not valid.

“The Commission is not required… to approve a Proposed Final Determination that comes before it, even if the CRS’s Preliminary Determination is uncontested,” the award order states. “Determinations of whether, to whom, and in what amount to make awards are committed to the Commission’s discretion.”

Success of the SEC Whistleblower Program

Since the it was established with the passage of the Dodd-Frank Act in 2010, the SEC Whistleblower Program has received more than 80,000 whistleblower tips, awarded more than $1.9 billion to whistleblowers, and has recovered more than $6.3 billion in total monetary sanctions, including more than $4 billion in disgorgement of ill-gotten gains and interest.

According to SEC Chair Gary Gensler, the whistleblower program “has greatly aided the Commission’s work to protect investors.”