On March 2, 2015, the U.S. Securities and Exchange Commission awarded a whistleblower at least $475,000 for providing original, high-quality information that led to a successful SEC enforcement action.1 The whistleblower is a former company officer, which is particularly noteworthy since officers are typically not eligible to receive a whistleblower award. In this case, the SEC not only allowed the whistleblower an award but commended the former officer for coming forward with the information.
To implement portions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act,2 the SEC created its Whistleblower Program, which is designed to provide monetary awards to persons who provide original information related to violations of securities laws if the information leads to an enforcement action resulting in more than $1 million in monetary sanctions. “Original information” is information “derived from the independent knowledge or analysis of a whistleblower”3 but generally excludes any information obtained by an “officer, director, trustee, or partner of an entity.”4 The SEC has observed that “[c]orporate officers have front-row seats overseeing the activities of their companies.”5 Accordingly, officers, directors, trustees and partners are not ordinarily deemed to have “original information” regarding potential securities violations and are thus ineligible for whistleblower awards under the SEC’s whistleblower regulations unless they fall within an exception to this general rule.
The exception provides that an officer, director, trustee, or partner may have original information if at least 120 days has elapsed since the information was provided to the company’s “audit committee, chief legal officer, chief compliance officer (or their equivalents)” or to the claimant’s supervisor, or since the claimant received the information, if it was received under circumstances indicating that the entity’s audit committee, chief legal officer, chief compliance officer (or their equivalents), or claimant’s supervisor was already aware of the information.6
The Claimant here, a former officer of the company, reported information about the violation to another responsible person at the company at least 120 days before reporting the information to the Commission.7 The person who was responsible to act on the information allegedly failed to act and the Claimant took the information to the SEC directly.
This award is the fifteenth whistleblower award made by the SEC’s whistleblower program since its inception in August 2011. The first whistleblower payout made to a compliance officer was made just this past August (2014) in the amount of $300,000. There, the compliance officer reported the wrongdoing internally, but went to the SEC when the company failed to take corrective action.
In making its most recent award, the SEC stressed the importance of receiving information and assistance from company insiders.8 Companies, therefore, should closely examine compliance policies and procedures and ensure proper training of compliance and audit personnel to avoid these costly penalties.
1 Order Determining Whistleblower Award Claim, Securities Exchange Act of 1934 Proceeding File No. 2015-1 (March 2, 2015), available at http://www.sec.gov/rules/other/2015/34-74404.pdf
2 Pub. L. No. 111-203, 124 Stat. 1376 (2010).
3 15 U.S.C. § 78u-6(a)(3).
4 17 C.F.R. § 240.21F-4(b).
5 Press Release, U.S. Securities and Exchange Commission, Former Company Officer Earns Half-Million Dollar Whistleblower Award for Reporting Fraud Case to SEC (March 2, 2015), 2015-45, available at http://www.sec.gov/news/pressrelease/2015-45.html#.VQmCno7F_Eo
6 7 C.F.R. § 240.21F-4(b)(4)(v)(C).
7 Ibid. footnote 1.
8 Ibid. footnote 5.
