SEC Announces First Payout to Whistleblower under New Program

Wilson Sonsini Goodrich & Rosati
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On August 21, 2012, the Securities and Exchange Commission (SEC) announced its first payout under the SEC program established one year ago this month that provides bounties for whistleblowers providing evidence of violations of securities laws.1

The whistleblower, who provided documents and other information that helped the SEC stop an alleged multimillion-dollar fraud, will receive nearly $50,000—a figure that reflects the maximum 30 percent payout of the amount collected by the SEC in its enforcement action against the defendants, as permitted under the whistleblower program. The court ordered more than $1 million in sanctions and the SEC has collected approximately $150,000 of that award. Any increase in sanctions ordered by the court and/or any collection by the SEC will increase the payout to the whistleblower. According to the SEC, the whistleblower's assistance allowed the investigation to move more quickly and prevented the alleged fraud from affecting additional people. The SEC did not approve an award claim from a second whistleblower because the information provided by the second individual did not lead to or significantly contribute to the SEC's enforcement action.

The SEC is touting the payout as an example of the whistleblower program's success. Robert Khuzami, Director of the SEC's Division of Enforcement, was quoted in the SEC release saying, "This whistleblower provided the exact kind of information and cooperation we were hoping the whistleblower program would attract. Had this whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized."

The award announced today represents the first payout under the whistleblower program, but additional payouts should be expected as the chief of the SEC's Whistleblower Office, Sean McKessy, said the SEC receives about eights tips per day under the program. This payout draws attention to the importance of companies developing and enhancing policies and programs that promote internal reporting. Some key considerations include, among other things, establishing sufficient communication channels for reporting and facilitating anonymous reporting, promptly evaluating complaints, implementing effective anti-retaliation policies, and setting up procedures for keeping whistleblowers appropriately informed.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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