Whistleblower activity has recently been picking up steam as the SEC’s whistleblower program rolls on after being launched in 2012. In September 2014, the SEC awarded its largest ever award to a whistleblower who provided key original information that led to a successful SEC enforcement action. The award, which was for over $30 million, illustrates the increasing commitment the SEC is putting in its whistleblower program.
“This record-breaking award sends a strong message about our commitment to whistleblowers and the value they bring to law enforcement,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement. This latest award comes on the heels of nine prior awards in 2014 and four awards in 2013.While these numbers may seem small, the Office of the Whistleblower received 3,238 tips in fiscal year 2013. With the average lifecycle of an average SEC investigation being two to four years, there will likely be many more major cases stemming from whistleblower activity in the near future. According to SEC Chair Mary Jo White, “the SEC’s whistleblower program, which has been fully operational for three years, has already had a significant impact on our investigations. The tips have helped the Enforcement Division identify more possible fraud and other violations and earlier than would otherwise have been possible.”
It is not just domestically in the United States that the SEC whistleblower program is effective. Tips have come from all areas of the globe (the $30 million award noted above was to an individual living in a foreign country, and was the fourth award to an individual living in a foreign country). Sean McKessy, Chief of the SEC’s Office of the Whistleblower, said, the “award of more than $30 million shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice. Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”
The ”anyone” that Sean McKessy alludes to includes employees who perform internal audit, compliance and legal functions (referred to herein as “compliance employees”). Although under the general rules of the SEC’s whistleblower program, compliance employees are precluded from receiving awards for whistleblower activity, there is an exception if the compliance employee reported concerns internally, but sees no action on those concerns in 120 days. After 120 days, the compliance employee is eligible to become an SEC whistleblower. In August 2014, the SEC awarded $300,000 to a company employee who performed compliance functions. This was the first ever award given to a compliance employee.
In all cases, the SEC keeps information about the nature of the misconduct, the company where it occurred, and the identity of the individual anonymous in order to assure that the individual cannot be identified. The SEC takes protection of whistleblowers seriously and has brought action against companies that retaliate against a whistleblower. In June 2014, the SEC brought a retaliation charge against hedge fund Paradigm Capital Management and its chief executive for “engaging in prohibited principal transactions and then retaliating against the employee who reported the trading activity to the SEC.” This charge resulted in a settlement of $2.2 million. This was the first time the SEC brought a charge under its authority to bring anti-retaliatory enforcement actions. “Those who might consider punishing whistleblowers should realize that such retaliation, in any form, is unacceptable,” said Andrew Ceresney.
The SEC’s whistleblower program rewards high-quality, original information that results in an SEC enforcement action with sanctions exceeding $1 million. Whistleblower awards can range from 10 percent to 30 percent of the money collected in a case. The money paid to whistleblowers comes from an investor protection fund established by Congress at no cost to taxpayers or harmed investors. The fund is financed through monetary sanctions paid by securities law violators to the SEC. Money is not taken or withheld from harmed investors to pay whistleblower awards.
For more information about the whistleblower program and how to report a tip, go directly to the Office of the Whistleblower’s website, www.sec.gov/whistleblower.