Submitting Information to the SEC Whistleblower Program

The SEC Form TCR (Tip, Complaint, or Referral) is the form whistleblowers and their attorneys use to submit tips to the SEC Whistleblower Office.  Under the Dodd-Frank SEC Whistleblower Program, a whistleblower who provides original information that leads to an enforcement action with total civil penalties in excess of $1 million is eligible for an award of between 10-30 percent of the total sanctions imposed.  The form has many sections, however, whistleblowers and their attorneys should pay close attention to following:

Section B of the SEC Form TCR

Section B requests information about the whistleblower’s attorney. This section is important because whistleblowers can submit their tip anonymously if represented by an attorney and leave Section A  blank. This is a critical improvement for the SEC Whistleblower Program as other whistleblower programs do not offer anonymous reporting, such as the IRS Whistleblower Program.

Section D of the SEC Form TCR

Eligibility

Section D asks whistleblowers to describe their complaints. Many of the questions in Section D are aimed at determining whether a particular whistleblower is eligibile for an SEC award (even though Section E is technically the “eligibility” section). Importantly, almost all whistleblower can become eligible for an award if certain steps are taken. This includes certain employees or contractors who may incorrectly assume they are not eligible for SEC awards, such as compliance personnel, auditors, directors, and officers (see Section D, part 5a). Even whistleblowers who had involvement in the fraud or misconduct can be eligible whistleblowers.

For example, external auditors are generally not eligible to receive SEC whistleblower awards, especially external auditors who obtained the information during the audit of an issuer. However, an exception in the rules allows external auditors to become eligible in these circumstances when they report the information to a superior in the independent public accounting firm and the audit firm fails to promptly report the information to the SEC. Under the rules, there are many exceptions like this that allow otherwise ineligible whistleblowers to become eligible when certain steps are taken.

Whistleblowers should consult with an experienced SEC whistleblower attorney to determine their eligibility, or whether they can become eligible, for SEC whistleblower awards. This determination could result in a multi-million-dollar whistleblower award or nothing.

Maximize Your Award

Many questions in Section D will also have an impact on a whistleblower’s future award percentage. Under the program, a whistleblower may receive an award of between 10-30 percent of the total sanctions imposed as a result of his or her tip. In order to maximize the percentage a potential award, whistleblowers should evaluate the factors the SEC’s considers when determining an award percentage and stress these factors in their submission. This analysis must happen before the whistleblower submits information to the SEC.

For example, Section D, part 5b asks whether the whistleblower “reported this violation to his or her supervisor, compliance office, whistleblower hotline, ombudsman, or any other available mechanism at the entity for reporting violations?” While this question is important for determining certain whistleblower’s eligibility (e.g., 120-day exception), it may also impact a whistleblower’s award percentage. Per the SEC’s Final Rules, the whistleblower office may increase the amount of an award if the whistleblower “reported the possible securities violations through internal whistleblower, legal or compliance procedures before, or at the same time as, reporting them to the Commission.” As such, whistleblowers should strongly consider reporting internally to their company prior to reporting to the SEC. After reporting internally, however, whistleblowers are also incentivized to report to the SEC as soon as possible.

As another example of how to maximize a potential award, Section D, part 12 asks the whistleblower to provide “any additional information you think may be relevant.” This section offers whistleblower an opportunity to identify and emphasize other aspects of the claim that support an increased award percentage. For example, the SEC may issue a larger award to a whistleblower who experienced any “unique hardships…as a result of his or her reporting and assisting in the enforcement action.” This may include discussion on any retaliation the whistleblower experienced or perhaps the personal risks the whistleblower took in order to expose the fraud. See Rule 21F-6(a)(2)(vi). Again, whistleblowers should consider these factors prior to submitting a tip to the SEC.

Identify the Securities Law Violations for the SEC

Section D, part 8 asks whistleblowers to explain why they believe the acts described “constitute a violation of the federal securities laws.” Whistleblowers should determine what violations qualify for an SEC award, and provide the SEC with a clear roadmap describing how the acts tie to specific violations.

Whistleblower should also describe why these violations are material. In the past five years, whistleblower have filed more than 18,000 tips with the SEC Whistleblower Office. The SEC will only invest its limited resources into the best tips. As such, whistleblowers should explain, in detail, why their tip warrants the SEC’s resources more than the thousands of other tips.

If a whistleblower is uncertain about a specific violation, he or she may benefit from reading prior SEC enforcement actions and consulting with an experienced SEC whistleblower attorney.

Provide Specific Evidence of the Violation

Section D, part 9 asks whistleblowers to “[d]escribe all supporting materials in the [their] possession and the availability and location of any additional supporting materials not in [their] possession.” The SEC Whistleblower Office is more likely to act on a tip if it is supported by strong evidence. This is evidence that is specific, timely and credible. For example, a whistleblower may provide documentation that walks the SEC through an example of the fraud step-by-step and explains how the fraud has a material impact on the entity or its investors.

Notably, recent decisions have clarified the scope of company documents that a whistleblower may take to disclosure fraud to the government. In Erhart v. Bofi Holdings, Judge Bashant held confidentiality agreements do not trump federal whistleblower rights and whistleblowers are permitted to take an “appropriate” amount of company documents to disclose fraud to the government. According the order, a whistleblower’s evidence may be considered “appropriate” when it is carefully selected, specifically related to the violation, and accessible in the ordinary course of the employee’s duties. The judge warned, however, that “vast and indiscriminate” collection of company documents may not immunize the whistleblower from potential liability.

Finally, whistleblowers should not provide all types of evidence. For example, the SEC does not want information that may violate the company’s attorney-client privilege. If a whistleblower has questionable evidence, he or she should consult with an attorney and potentially notify the SEC to have its taint team handle the evidence.

Protect Your Identity

After providing a detailed explanation of the fraud and providing evidence to support it, whistleblowers should identify any information in the submission that could expose them as the whistleblower. Specifically, Section D, part 11, asks whistleblowers to “[i]dentify with particularity any documents or other information in your submission that you believe could reasonably be expected to reveal your identity and explain the basis for your belief that your identity would be revealed if the documents were disclosed to a third party.”

The SEC takes its responsibility to protect whistleblower’s identities very seriously. Whistleblowers can assist this effort by flagging any information that could point to them as the whistleblower. The SEC will then determine the best path to opening an investigation without tipping off the target that a whistleblower is involved.

Section F of the SEC Form TCR

Whistleblowers should know that they must sign the Form TCR under the penalty of perjury. Specifically, Section F states: “I declare under penalty of perjury under the laws of the United States that the information contained herein is true, correct and complete to the best of my knowledge, information and belief. I fully understand that I may be subject to prosecution and ineligible for a whistleblower award if, in my submission of information, my other dealings with the SEC, or my dealings with another authority in connection with a related action, I knowingly and willfully make any false, fictitious, or fraudulent statements or representations, or use any false writing or document knowing that the writing or document contains any false, fictitious, or fraudulent statement or entry.”

If a whistleblower submits their tip anonymously, the whistleblower’s attorney is required to keep the whistleblower’s signed declaration and it will not be included in the filing with the SEC. In these circumstances, only the attorney’s signature in Section G is required.