SEC Issues Whistleblower Award, Waives Voluntary Requirement

The Securities and Exchange Commission (SEC) decided that a whistleblower who did not “voluntarily” provide information to the SEC was nonetheless eligible to receive a monetary award of $400,000. The whistleblower’s disclosure was not voluntary under the SEC’s own rules because it occurred after a previous inquiry to the company by a self-regulatory organization. Nevertheless, the SEC concluded that it was “appropriate in the public interest and consistent with the protection of investors to waive the ‘voluntary’ requirement” and rewarded the whistleblower monetarily.

Lloyd Chinn, co-chair of Proskauer’s Whistleblowing and Retaliation Practice Group, commented on the decision in a Wall Street Journal article entitled “Spurned Whistleblower Gets $400K SEC Award.” “Under the SEC’s rules this person should have been disqualified and was disqualified originally, but because of the particular circumstances they decided to waive that requirement, which I think shows the aggressive attitude of the Whistleblower’s Office, the aggressive posture to make awards,” Chinn said. Chinn noted that it appears that the SEC was motivated by a desire to reward the vigorous efforts the whistleblower made over time both to report internally and then to cooperate in the agency’s investigation, even though the case did not technically meet the definition of voluntary. He also noted that the company’s handling of the whistleblower’s complaint—at least in the eyes of the SEC—played a role in its decision to make the award. Chinn emphasized the need for companies to implement proper internal control mechanisms to address these types of whistleblower complaints. He commented that this decision sends a strong message that companies must act on credible information from its employees. The Society for Human Resource Management and the American Lawyer also quoted Chinn about the SEC’s award.

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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