On March 29, the U.S. Securities and Exchange Commission (SEC) awarded more than $500,000 to a whistleblower whose disclosure allowed the SEC to shut down an ongoing fraudulent scheme. With this award, the SEC set a new record for the most individual whistleblowers awarded in a fiscal year.
According to the SEC’s award order, the whistleblower “provided significant information that prompted the opening of the investigations by [a separate agency] and [SEC] staff, met with them in-person, and continued to provide helpful documents.”
“With this award, the Commission has awarded 40 individuals this fiscal year, surpassing last year’s record of 39 individual awards,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “The Commission has awarded whistleblowers nearly $200 million in the first half of FY21 alone.”
In January, the SEC set the record for the total dollar amount awarded to whistleblowers in a single fiscal year. As Norberg notes, since the 2021 fiscal year began on October 1, 2020, the SEC has awarded nearly $200 million to 40 individuals. The previous records for both total amount awarded and number of individuals awarded were both set in the 2020 fiscal year when the SEC awarded approximately $175 million to 39 individuals.
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. According to the SEC, “all payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.”
The newly awarded whistleblower first reported the violations through their company’s internal reporting channel. In response, the company opened an internal investigation and then reported their findings to an outside agency, which in turn contacted the SEC. Importantly, the whistleblower separately filed a formal whistleblower tip with the SEC within 120 days of having reported the violations internally. A whistleblower is required to file a formal tip with the SEC in order to be eligible for an award.
In determining the whistleblower award, the SEC relied upon the “safe harbor” provision of the whistleblower program rules. The award order explains that in instances where a whistleblower formally files a tip with the SEC within 120 days of reporting the same information internally, the SEC “will treat the information as though it had been submitted to the Commission directly from the individual at the same time that it was submitted internally.” Thus in this case, the SEC considered the whistleblower as the source of the original information which led to the successful enforcement action.
It is essential that whistleblowers promptly file formal complaints to the SEC in addition to internal reporting channels because it is also the only way to ensure legal protection under the Dodd-Frank Act. The Dodd-Frank Act provides anti-retaliation protections to whistleblowers but only if they have filed a formal SEC whistleblower tip prior to the retaliatory act. All in all, potential whistleblowers should contact experienced whistleblower attorneys prior to making any disclosure in order to ensure full legal protection and award eligibility.
The U.S. Senate will soon vote on the confirmation of Gary Genser as the next Chair of the SEC. Recently, Gensler pledged strong support for SEC whistleblowers. In a series of written answers to questions filed by Senator Chuck Grassley, Gensler stated: “If confirmed to lead the SEC, I will build on the work of past Chairs to ensure continued strength in the whistleblower program.”
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