On February 19, the U.S. Securities and Exchange Commission (SEC) announced two whistleblower awards totaling almost $3 million. The awards, the first since President Biden appointed Allison Lee as Acting Chair of the SEC on January 21, were issued to whistleblowers whose disclosures helped lead to successful enforcement actions. With these awards, the SEC Whistleblower Program continues a record start to the 2021 fiscal year.
The first whistleblower received a $2.2 million award for providing the SEC with significant information which led to the return of millions of dollars to harmed clients. According to the SEC, the whistleblower’s information “was of such high quality that staff was able to draft document requests based on [the whistleblower’s] information without speaking with [the whistleblower]).”
The second whistleblower received a $700,000 award for prompting an SEC investigation into a fraudulent reporting scheme. In addition to the original disclosure, the whistleblower provided critical documents and helped to identify key witnesses.
“The return of millions of dollars to harmed clients in one matter, and the uncovering of a fraudulent scheme in the other matter, underscore the tremendous value that whistleblowers provide,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.
“Once again, whistleblowers have proven to be the most effective tool in rooting out fraud, waste, and abuse,” said SEC whistleblower attorney Stephen M. Kohn, partner at Kohn, Kohn & Colapinto. “Without these whistleblowers, the SEC would have spent countless hours and resources trying to chase down the fraudsters. We owe a debt of gratitude to every whistleblower who steps up when we need them most.”
The SEC has now awarded approximately $179 million to 30 whistleblowers since the 2021 fiscal year began on October 1, 2020 – a record for the total dollar amount awarded to whistleblowers in a fiscal year. The previous record, $175 million, was set in the 2020 fiscal year. 2020 also featured a new record for the number of whistleblower tips received by the SEC – a fact partially attributed to the rise in remote work during the COVID-19 pandemic.
Through the SEC Whistleblower Program, qualified whistleblowers, individuals who voluntarily provide the SEC original information that leads to a successful enforcement action, are entitled to a monetary award of 10-30% of funds recovered by the government. The SEC pays awards out a fund entirely financed through monetary sanctions paid to the SEC by securities law violators.
In the award determinations for both of the newly awarded whistleblowers, the SEC notes that each individual reported the violations internally in addition to making a formal whistleblower disclosure with the SEC. Reporting internally is a positive factor commonly cited by the SEC in award determinations. In one of today’s orders the SEC claimed the whistleblower “took personal and professional risks by raising concerns internally in an effort to remedy the misconduct.” However, in rule changes to the whistleblower program approved in September 2020, the SEC stripped itself of the authority to enforce anti-retaliation protections when whistleblowers report internally and not directly to the SEC.
Whistleblower advocates, as well as then-Commissioner Lee, opposed this and other changes to the whistleblower program. However, recent whistleblower awards have eased some of whistleblower advocates’ worst fears that the SEC will use the new rules to avoid rewarding deserving whistleblowers. Even so, advocates are hopeful that, if confirmed as the next Chair of the SEC, Gary Gensler will revisit some of the controversial changes.
Another recent development is encouraging to whistleblower advocates. In a move which may signal that the SEC will be more aggressive in enforcement efforts under the Biden administration, on February 9 Acting Chair Lee reauthorized senior enforcement officers to formally launch investigations. Whistleblower advocates are hopeful that this decision will lead to a further rise in whistleblower awards and that the SEC’s new leadership will continue and enhance the agency’s commitment to its whistleblower program.