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May 23, 2016

Latest Awards Signal SEC’s Commitment to Whistleblowers

by: William S. Norton

By announcing three whistleblower awards in one week totaling nearly $10 million, the U.S. Securities and Exchange Commission has recently indicated its continuing commitment to compensating individuals who come forward with information that contributes to the enforcement of the securities laws. As discussed below, the orders granting these awards offer insight on how the SEC may evaluate future claims under the Dodd-Frank Whistleblower Program.

The SEC’s rejection of a whistleblower’s claim isn’t necessarily the end of the road

Just because the SEC denies a whistleblower’s claim for an award doesn’t mean that he or she cannot eventually earn one by providing further information.

On May 13, the SEC announced that it will award $3.5 million to a whistleblower whose claim the SEC had previously denied in January. After being denied, the claimant provided additional evidence and requested the SEC reconsider.

Upon reconsideration, the SEC found that the whistleblower had “significantly contributed” to the staff’s investigation by helping them “focus” and “elevate its inquiry” into the reported misconduct. The SEC noted that the new information increased its leverage during the settlement negotiations.

The SEC is aware of the hardships that whistleblowers often face and pays accordingly

In assessing the size of an award, SEC will consider the retaliation and hardship an employee experiences due to reporting misconduct. The Commission clearly wants to embolden employees with knowledge of wrongdoing to come forward.

SEC whistleblower awards range in from 10 to 30 percent of the funds recovered when the monetary sanctions exceed $1 million.  In determining the appropriate award percentage for the May 13 award, the SEC considered “certain unique hardships experienced by the Claimant” as a result of reporting, including the whistleblower’s inability “to find employment since reporting the misconduct.” 

Whistleblower reports that “significantly contribute” to ongoing investigations are welcome

Just because the SEC is already investigating certain alleged misconduct doesn’t mean that a whistleblower with new and valuable information is not eligible for an award.  Commenting on the May 13 award, Andrew Ceresney, Director of the SEC’s Enforcement Division, confirmed that “whistleblowers can receive an award not only when their tip initiates an investigation, but also when they provide new information or documentation that advances an existing inquiry.”

The SEC continues to pay some of its highest awards ever to company insiders

On May 17, the SEC announced that it will award between $5 and $6 million to a “former company insider whose detailed tip led the agency to uncover securities violations” by that person’s former employer. The award was the Commission’s s third-highest to a whistleblower.

Commenting on the May 17 order, Mr. Ceresney advised that “employees are often best positioned to witness wrongdoing” and that “when they report specific and credible tips to us, we will leverage that inside knowledge to advance our enforcement of the securities laws and better protect investors and the marketplace.”

On May 20, the SEC announced a third award of more than $450,000 to two individuals who led the Commission to open a “corporate accounting investigation” and whose information assisted in that investigation.

By announcing this latest flurry of awards, the SEC has reaffirmed its commitment “to the continued issuance of significant whistleblower awards in the months and years to come.” This is reassuring news for potential whistleblowers whose knowledge is critical to sound corporate governance and effective enforcement of the securities laws.