|October 7, 2013|
Previously published on October 4, 2013
In a press release issued on October 1, 2013, the U.S. Securities and Exchange Commission (SEC or Commission) announced its largest whistleblower award yet of $14 million. The recipient of the award is an individual whistleblower who reported information that led to a successful enforcement action for a potential violation of the federal securities laws and ultimately allowed the SEC to recover “substantial” investors’ funds. Because the whistleblower wanted to remain anonymous, the SEC did not disclose any additional information surrounding the grounds for the enforcement action.
Although the details of the enforcement action were not disclosed, the Commission’s Order Determining Whistleblower Award Claim (Order) provides some insight into the basis for the size of the award. According to the Order, the expected dollar amount of the award will exceed $14 million “in light of the monetary sanctions already collected” and after “appropriately recogniz[ing] the significance of the information that the [whistleblower] provided to the Commission, the assistance the [whistleblower] provided in the Commission action, and the law enforcement interest in deterring violations by granting awards.”1
To date, the SEC has awarded eligible whistleblowers $25,000 to $14 million as part of the incentivized Whistleblower Program. The recent $14 million award is the fifth award the Commission has awarded since the Whistleblower Program went into effect in July 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Considering factors prescribed by law, the SEC sets whistleblower awards between 10% and 30% of the total monetary sanctions collected as the result of a successful enforcement action. Specific factors considered by the SEC include the significance of the information provided to the SEC, the extent of the whistleblower’s participation in an investigation and successful proceeding, law enforcement interest in deterring violations, and whether the whistleblower was a participant or culpable in the securities laws violations.
Employers should know that an individual is eligible for an award under the Whistleblower Program only if the person “voluntarily provides [the SEC] with original information about a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur [and] [that] information. . . lead[s] to a successful SEC action resulting in an order of monetary sanctions exceeding $1 million.”2
The recent whistleblower award of $14 million should serve as a message to employers given the great monetary incentive driving the Whistleblower Program and possible sanctions that can result from a SEC investigation. Thus, employers subject to federal securities laws should be proactive and look to develop appropriate internal reporting procedures.
1Whistleblower Award Proceeding, File No. 2013-4 (SEC Sept. 30, 2013), available at http://www.sec.gov/rules/other/2013/34-70554.pdf.
2SEC Office of the Whistleblower, Frequently Asked Questions and Answers (October 2, 2013), available at http://www.sec.gov/about/offices/owb/owb-faq.shtml#P2&under;764.