On January 15, 2016, the SEC announced an award of $700,000 to a company outsider who conducted a detailed analysis that led to a successful SEC enforcement action. This is likely the largest award to date for independent analysis of publicly available information, and will likely encourage securities analysts and fraud examiners to disclose independent analysis to the SEC.

While most of the SEC whistleblower awards to date were provided to corporate insiders who provided original information leading to monetary sanctions exceeding $1 million, the Dodd-Frank Act also authorizes payment of whistleblower awards for “independent analysis” that is not already known to the SEC from any other source. The rules implementing the SEC whistleblower award provision of the Dodd-Frank Act define “independent analysis” as “your own analysis, whether done alone or in combination with others . . . your examination and evaluation of information that may be publicly available, but which reveals information that is not generally known or available to the public.”

In the press release announcing the award, Andrew Ceresney, Director of the SEC’s Enforcement Division, notes that “[t]he voluntary submission of high-quality analysis by industry experts can be every bit as valuable as first-hand knowledge of wrongdoing by company insiders.” And indeed a primary impetus for the SEC whistleblower award program was the SEC’s failure to act on independent analysis provided by Harry Markoplos about Bernard Madoff’s ponzi scheme. Markopolos detected Madoff’s fraud nearly nine years before it became public and provided the SEC with detailed analysis, and repeatedly implored the SEC to act on his findings.

Markopolos’ poignant Congressional testimony about his efforts to stop Madoff’s fraud is available below, and is a good reminder why the SEC should reward original independent analysis that enables the SEC to protect investors.   The testimony also reveals the courage required to blow the whistle on fraud and the real risks that whistleblowers take when they expose fraudulent schemes.