On February 23, the U.S. Securities and Exchange Commission (SEC) awarded more than $9.2 million to a whistleblower whose information led to successful enforcement actions by the U.S. Department of Justice (DOJ). The whistleblower provided significant information about an ongoing fraud which enabled a large amount of money to be returned to harmed investors.
These awards were issued under the related-action provisions of the Dodd-Frank Act (DFA). Under these provisions, the SEC pays whistleblower awards when other government agencies carry out enforcement actions based on information originally provided to the SEC. In this case, the whistleblower provided information to the SEC which in turn shared the information with the DOJ. The whistleblower previously received an award for an enforcement action carried out by the SEC based on the same information.
One of the enforcement actions the DOJ carried out was a non-prosecution agreement (NPA) or deferred prosecution agreement (DPA). This is the first award for a NPA or DPA since the SEC amended the rules to its whistleblower program to include NPAs and DPAs as forms of “related actions” eligible for whistleblower awards. The newly amended rules went into effect on December 7, 2020.
“This award reflects the Commission’s determination that a whistleblower’s eligibility for an award should not depend on the procedural vehicle a federal agency selects to resolve an enforcement matter,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “Deserving whistleblowers, like today’s awardee, will be rewarded regardless of the path used to successfully conclude the matter.”
Qualified SEC whistleblowers, individuals who provide original information that leads to a successful SEC enforcement action, are entitled to a monetary award of 10-30% of funds recouped by the government. Similarly, related-action awards are also for 10-30% of the funds recouped in the actions. The SEC pays awards out a fund entirely financed through monetary sanctions paid to the SEC by securities law violators.
In addition to expanding the definition of “related action” to include NPAs and DPAs, the rule changes to the SEC Whistleblower Program altered the program’s handling of related-action awards in other ways. In a rule change widely criticized by whistleblower advocates, the SEC authorized itself to not to pay a related-action reward when it deems that the action is more “relevant” to another agency’s reward program. Whistleblower advocates claim this rule change is in violation of the related-action statutes of the DFA. They also state that the rule change is dangerous to whistleblowers because it forces them to go to the whistleblower programs of other agencies which may have less robust confidentiality protections.
The SEC has awarded more money to whistleblowers in the first five months of the 2021 fiscal year than in any previous entire fiscal year. Since the 2021 fiscal year began on October 1, 2020, the SEC has awarded approximately $190 million to 30 whistleblowers. In total, the SEC has awarded more than $750 million to 136 individuals since issuing its first award in 2012.