On March 4, the U.S. Securities and Exchange Commission (SEC) announced a whistleblower award of over $5 million issued to joint whistleblowers located abroad. The whistleblowers filed a joint whistleblower tip that led to the opening of an SEC investigation. In their tip, the whistleblowers provided the SEC with original information about misconduct abroad which directly contributed to an enforcement action carried out by the SEC.
According to the SEC’s award determination, the whistleblowers provided the SEC with significant information and ongoing assistance. The SEC notes that the misconduct abroad that the whistleblowers disclosed would have otherwise been hard to detect. The award demonstrates that SEC whistleblowers do not need to be located in the United States or be American citizens to qualify for an award. Violations of U.S. securities laws occur all over the globe, and the SEC actively encourages individuals from any country to come forward with information on possible violations.
“The whistleblowers’ information alerted the staff to misconduct occurring abroad which could have been difficult to detect without their tip,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “Whistleblowers from 130 different counties have provided tips to the Commission since the beginning of the program, and we hope this award encourages others with credible information to come forward.”
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 through a fund entirely financed through monetary sanctions paid to the SEC by securities law violators. The SEC Whistleblower Program also provides anti-retaliation protections to whistleblowers, including confidentiality. Thus, the SEC does not disclose any information that may reveal a whistleblower’s identity.
In the order for today’s award, the SEC also outlined two award denials for individuals who submitted award applications for the same enforcement action. According to the award determination, these claimants were not eligible for awards because their information did not meet the “led to” standard, meaning that the information they provided did not directly lead to the enforcement action. The claimants argue that they disclosed information to the news media, leading to articles that influenced the company to conduct an internal review which uncovered securities violations. However, the SEC ruled that, even if this were true, the claimants’ information does not meet the defined “led to” standards.
Under precedent established by the SEC, an individual’s disclosure must correspond with one of three patterns outlined by SEC whistleblower program Rule 21F-4(c) in order to meet the “led to” standard necessary to qualify for an award. Under Rule 21F-4(c), an individual must provide information to the SEC that either leads to the opening of an investigation or that significantly contributes to the success of an already open investigation. Additionally, the rule states an individual may meet the “led to” standard if they report internally to a company and the company in turn opens an investigation and reports violations to the SEC based on this investigation.
In this case, the SEC determined the individuals did not meet the “led to” standard because they made their disclosures to the news media and not to the SEC or internally to the company. This is another example of how unlike the media, the SEC can protect and reward stock market whistleblowers.
Since issuing its first award in 2012, the SEC has awarded approximately $758 million to 142 individuals. So far in the 2021 fiscal year, the SEC has awarded approximately $197 million to 36 whistleblowers – a record for the total dollar amount awarded to whistleblowers in a fiscal year.