• SEC Reverses Course and Awards Dodd-Frank Whistleblower $400,000
  • October 7, 2014 | Authors: Bryan B. House; Pamela L. Johnston; Courtney Worcester
  • Law Firms: Foley & Lardner LLP - Washington Office ; Foley & Lardner LLP - Los Angeles Office ; Foley & Lardner LLP - Boston Office
  • On July 31, 2014, the SEC awarded $400,000 to a whistleblower who had reported internally before providing information to the SEC. The award was unique because the SEC’s Claims Review Staff had denied the whistleblower’s claim on the grounds that the information provided had not been provided voluntarily because there had been a prior inquiry into the matter conducted by a self-regulatory organization. The whistleblower filed a response to the initial determination, which the SEC said persuaded it that there were “significant extenuating circumstances” that caused the SEC to waive the “voluntary” requirement of its whistleblower rules “in the public interest and consistent with the protection of investors.”

    The SEC’s order noted several “highly unusual circumstances” that prompted the award, including: (1) the whistleblower had worked aggressively internally to bring the securities laws violations to the appropriate personnel in order to obtain corrective action; (2) the self-regulatory organization’s inquiry originated from information that identified the whistleblower’s role in identifying and trying to correct the violations; and (3) the whistleblower persisted in his efforts to obtain corrective action after seeing the self-regulatory organization inquiry had been closed and his internal efforts would not protect efforts from harm. The SEC said that the size of the award reflected the significance of the information that the whistleblower provided, the whistleblower’s efforts to protect investors and to report the violations internally, and the personal and professional injuries that the whistleblower suffered in reporting the violations.

    The SEC’s press release touted the whistleblower’s efforts to report internally. “The whistleblower did everything feasible to correct the issue internally,” said Sean McKessy, Chief of the SEC’s Office of the Whistleblower. “This award recognizes the significance of the information that the whistleblower provided us and the balanced efforts made by the whistleblower to protect investors and report the violation internally.”