SEC Issues $14 Million Whistleblower Award

Just last week the SEC issued its largest whistleblower payment to date, awarding an unidentified whistleblower more than $14 million for providing information to the SEC that led to an enforcement action and the recovery of a substantial amount of investor funds within six months of the SEC’s receipt of the tip.  This award was only the third under the SEC’s whistleblower program, with the others being relatively small awards of approximately $50,000 and $125,000.  Given the life-changing size of this award, the SEC is hopeful that it will encourage more individuals with information to come forward.

The SEC’s whistleblower program, which was implemented pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requires the SEC to pay awards to whistleblowers who voluntarily provide the SEC with original information about a violation of the federal securities laws that leads to a successful enforcement action resulting in monetary sanctions exceeding $1 million.  If these requirements are met, the whistleblower is entitled to an award of between 10 and 30 percent of the total monetary sanctions collected in the SEC action and certain related actions.

Because this award reinforces the great monetary incentives of the SEC’s whistleblower program, companies would be wise to take certain actions to reduce their risk of becoming subject to a whistleblower report.  Most importantly, companies should review and, if appropriate, enhance their internal controls.  Robust internal financial and disclosure control processes can prevent many possible securities law violations from occurring, and a strong internal audit function not only can deter violations, but also can ferret out and address problems before they escalate.  Companies should also review and, if appropriate, update their compliance program.  A company’s compliance program should educate employees on their reporting obligations and require them to promptly report suspected violations internally.  Hotlines for anonymous reporting should also be easy to use and function properly.


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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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