On June 3, 2019, the U.S. Securities and Exchange Commission (“SEC”) announced a joint award of $3 million to two whistleblowers who the SEC stated provided information that led to a successful enforcement action aimed at protecting retail investors. SEC Press Release, SEC Awards $3 Million to Joint Whistleblowers, No. 2019-81 (June 3, 2019). According to the SEC, both whistleblowers reported the alleged violations internally before reporting to the SEC. Interestingly, the Commission found that neither whistleblower was legally entitled to the award because their submissions were not “voluntary,” but the SEC relied on its discretion to issue the award regardless in an apparently conscious effort to further incentivize whistleblowing. SEC Whistleblower Award Proceeding, File No. 2019-7 (June 3, 2019).
Under Section 21F(b)(1) of the Securities Exchange Act of 1934, whistleblowers are not eligible for awards unless they “voluntarily” make their submissions to the SEC. 15 U.S.C. § 78u-6. For a submission to be voluntary, it must be made before any request or inquiry related to the subject matter of the submission is issued by the SEC or another government or regulatory authority. 17 C.F.R. § 240.21F-4(a). According to the Commission, before the whistleblowers reported their tip, a query letter had been sent to their employer by a different government agency. Due to the nature of their employment, both whistleblowers were required to respond to such a query letter. As a result, the SEC found that the whistleblowers technically did not voluntarily submit their information to the Commission.
Nevertheless, the SEC determined that it was “appropriate in the public interest and consistent with the protection of investors” to waive the voluntariness requirement and issue an award to the two whistleblowers. In support, it noted that the claimants were not made aware of the query letter, nor did they learn of the investigation by the other agency until months after reporting to the SEC. Also significant was the fact that the SEC concluded that the whistleblowers’ candid internal reporting was, in part, what caused the other agency to begin its investigation in the first place.
This award highlights not only the SEC’s willingness to waive certain requirements for whistleblower awards, but also gives insight into the factors that cause the Commission to favor granting whistleblower awards. Specifically, the SEC noted that it viewed the following favorably: the whistleblowers reported the alleged violation through their company’s internal system repeatedly and with “great tenacity,” they experienced hardships as a result of their reporting, they advocated internally for public disclosure of the alleged violations and took steps to remediate the effect of the violations, and they actively assisted the SEC’s investigation by meeting with staff in-person and identifying potential witnesses. The SEC also noted that it was particularly interested in deterring violations of the sort the whistleblowers reported because the violations posed harm primarily to retail investors.
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