On June 9, 2016, the United States Securities and Exchange Commission announced its second largest award under the agency’s Dodd-Frank Whistleblower Program. This is the largest such award issued since the SEC issued a $30 million award to a whistleblower in September 2014. The SEC has been explicit that it intends for large awards to entice potential whistleblowers to bring information to the officials. In a statement announcing this recent award, Sean McKessy, chief of the SEC’s Office of the Whistleblower, noted that, “[i]n the past month, five whistleblowers have received a total of more than $26 million, and we hope these substantial awards encourage other individuals with knowledge of potential federal securities law violations to make the right choice to come forward and report the wrongdoing to the SEC.”
Describing the assistance offered by this whistleblower, Andrew Ceresney, director of the SEC’s Division of Enforcement, stated that, “[t]he information and assistance provided by this whistleblower enabled our enforcement staff to conserve time and resources and gather strong evidence supporting our case.” The order determining this award further stated that the awardee submitted a detailed tip to the SEC and later provided additional new information that substantially advanced the agency’s investigation resulting in a successful enforcement action. That order also revealed that four other individuals submitted claims for whistleblower awards related to this case, but the Claims Review Staff determined that those individuals did not provide original information that actually led to successful enforcement of the relevant action.
While the SEC protects the identities of whistleblowers and did not identify the individual or the subject of the enforcement action, it did identify the whistleblower as a former company employee. Referring to the individual’s access to relevant information in this case, Director Ceresney stated that “[c]ompany insiders are uniquely positioned to protect investors and blow the whistle on a company’s wrongdoing by providing key information to the SEC so we can investigate the full extent of the violations.” While the SEC did not release any further details on the enforcement action, the size of the award indicates that the related enforcement action could have brought in between $56 million and $170 million.
The SEC’s Whistleblower Program was created under the Dodd-Frank Act. Under the 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. Since the Program was created in 2011, the SEC has awarded more than $85 million to 32 whistleblowers. While whistleblowers continue to submit reports to the SEC Whistleblower Program at an ever-increasing rate, and the SEC continues to publicize large awards to attract potential whistleblowers, it remains vital for companies to ensure that they have vigorous compliance programs in place to prevent and detect potential securities violations and to respond immediately in order to mitigate penalties that may result from inadvertent violations.
This award comes on the heels of two awards issued in mid-May and follows an announcement by McKessy earlier this year that the SEC was seeing “a significant uptick” in the number of tips submitted under the Whistleblower Program, which he attributed to public awareness of the program and the tens of millions of dollars paid to whistleblowers. For more information about those earlier awards and McKessy’s announcement of continuing increases in whistleblower tips, please see our earlier alerts: Whistling Fast and Furious: The SEC Issues Two Multimillion Dollar Awards to Whistleblowers and SEC Touts Continued Uptick in Whistleblower Tips.
For more information about the SEC Whistleblower Program, click here.
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