SEC’s Whistleblower Program Is Waiting to Blow a Big Payout

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Stephen Cohen, associate director of the U.S. Securities and Exchange Commission (SEC) Office of the Whistleblower, spent the early part of the summer blowing his commission's whistle and promising big awards on the horizon. However, in its first three years, the SEC has made only two awards. In the first, the whistleblower received $50,000, 30 percent of the amount the SEC was able to collect, and in the second, the whistleblower received nothing because the SEC was not able to collect on the underlying $7.5 million default judgment.

The SEC’s whistleblower program in three steps

The 2010 Dodd-Frank Wall Street Reform and Protection Act included a provision creating the SEC whistleblower program. These are the primary components of the program:

  • Security in employment — The law directly prohibits employers from firing, suspending, demoting, harassing or discriminating against a whistleblower. If retaliation is suspected, the whistleblower may sue for injunctive and monetary relief.
  • Privacy — The reporting of fraud and other securities violations may be made anonymously if the whistleblower has engaged a lawyer.
  • Rewards — If the SEC collects more than $1 million, the whistleblower may be awarded 10 percent to 30 percent of the monies collected.

The vacillating award amount

The SEC considers numerous variables in calculating the award given to a whistleblower, including the value of the information provided and how much the tip assisted the SEC in its investigation. In addition, the SEC evaluates how important it is to dissuade such violations of the law. If the informant violated securities law or unreasonably delayed reporting the violation to the SEC, the amount of the award may be reduced. Finally, if the informant participated in the company's internal compliance system or interfered with it, these factors have an effect on the amount of the award.

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SEC

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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