SEC Makes First Whistleblower Bounty Award


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The SEC has announced that it has made its first award to a whistleblower under its new Section 21F whistleblower program.  For background or a quick refresher, you can find our prior coverage of the whistleblower program here.

The Dodd-Frank Act created new Section 21F of the Securities Exchange Act of 1934.  Section 21F and accompanying rules establishes a tip program pursuant to which whistleblowers can report securities fraud to the SEC.  As an incentive for reporting, whistleblowers who provide the SEC with information that leads to an enforcement action in which more than $1 million in sanctions is ordered can receive rewards of up to 30% of the amount of sanctions.  The whistleblower program also includes provisions designed to protect the identity of whistleblowers to prevent employment retaliation.  Here are a few highlights from the press release and related coverage:

  • A second individual sought an award in connection with this enforcement action, but the SEC refused to grant any award because the information provided by the second whistleblower didn’t “lead to or significantly contribute to” the enforcement action.
  • The whistleblower program was established in August 2011, and since then the SEC has fielded about 8 tips per day from whistleblowers.
  • Forbes has raised several questions about the viability of the program, including whether the quantity of tips will be too high, or the quality too low, to result in many effective enforcement actions, and whether the anonymity provisions will actually work as intended.
  • On the other hand, the L.A. Times reports that the SEC believes the program is working effectively: “We are getting very, very high-quality information from whistle-blowers,” said Sean McKessy, director of the SEC’s whistle-blower office. “I was girding myself for what we were promised, which was an avalanche of nonsense, and I’ve been very pleased.”

Check frequently for updates on the implementation of the Dodd-Frank Act and other important securities law developments.

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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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