On November 14, 2016, the United States Securities and Exchange Commission announced an award of at least $20 million to a whistleblower for providing information that initiated a successful investigation and enforcement action. In addressing the award, Jane Norberg, Chief of the SEC’s Office of the Whistleblower, stated that, “Sizeable awards like this one should encourage whistleblowers everywhere that there are real financial incentives to promptly reporting potential securities law violations to the SEC.” This is the second whistleblower this year to be awarded at least $20 million under the SEC’s Whistleblower Program, which has awarded more $130 million to qualifying whistleblowers since 2011.
In this case, the whistleblower objected to the initial award determination by the Claims Review Staff and requested a larger award. More than two years after the initial determination, the SEC agreed to increase the award, explaining that the whistleblower’s initial report enabled the SEC to initiate an investigation quickly that led to a near total recovery of investor funds and the whistleblower continued to provide additional information to the SEC during the course of the investigation.
The order announcing this award also revealed that two other individuals submitted claims for whistleblower awards related to this action, but the Claims Review Staff determined that those individuals did not provide qualifying original information that actually led to successful enforcement of the relevant action. In particular, the order noted that the individuals denied awards provided information to the SEC prior to the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that created the Whistleblower Program, and that such reports were ineligible for award. Under the SEC’s Whistleblower Program, eligible whistleblowers may receive awards ranging from 10 to 30 percent of the amount the SEC collects in a successful enforcement action, providing those collections exceed $1 million. The SEC continued touting of its multi-million dollar awards has led to it receiving tips from whistleblowers at an ever-increasing rate.
In this action, the SEC did not identify the whistleblower, nor did it identify the whistleblower as an insider, but the SEC has previously revealed that approximately 60 percent of whistleblowers are either former or current employees or contractors, consultants, or solicited to act as consultants for the company committing the securities violation. Although the SEC has previously stated that more than 80 percent of whistleblowers who are current or former employees made internal reports before reporting information to the Commission, the SEC’s determination in this case to increase an award, at least in part, because the whistleblower came to the SEC quickly could discourage internal reporting in the future. While it remains vital for companies to ensure that they have vigorous compliance programs in place to prevent and detect potential securities violations, companies should consider incentivizing employees to report through those internal channels. Companies also must respond immediately to such reports to mitigate penalties that may result from any violations.
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