In the first reward of its kind under the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the Securities and Exchange Commission (SEC) awarded money to an unnamed whistleblower who helped the SEC bring an enforcement action resulting in over $1 million in sanctions. The informant received 30 percent of the $150,000 in sanctions collected so far, which is the maximum percentage allowed under the Dodd-Frank Act.
Robert Khuzami, head of the SEC's enforcement division said that ”[h]ad this whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized.” A second individual provided information but received no award because their information did not significantly help the SEC’s case.
The Whistleblower Program
In August 2011, the SEC adopted the whistleblower program as part of the Dodd-Frank Act to encourage and reward people who come forward with information leading to successful SEC enforcement actions. Prior to the Dodd-Frank Act, the SEC’s whistleblower program was limited to insider trading cases and capped the whistleblower reward at 10 percent of the total amount of the sanctions recovered.
According to the SEC, to receive a reward under the new rules, a whistleblower “must voluntarily provide the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million.”
The SEC says information leading to a successful enforcement action can be sufficiently “specific, credible and timely” information leading to a new investigation, the reopening of a closed investigation or a new line of inquiry in a current investigation. It can also mean information that “significantly contributed” to the success of an action already under investigation.
The SEC has received approximately eight tips a day since the program launched in August 2011. To handle the volume of tips and complaints, and to determine the proper amount of each award, the SEC created the Office of the Whistleblower. The Office’s goals are to minimize harm to investors, preserve the integrity of U.S. markets and punish those engaging in fraud.
With the broadened scope of actions covered by the Dodd-Frank Act and the SEC’s whistleblower program and the increased value of potential rewards, the number of whistleblower complaints is sure to increase. The first reward given through the program was the highest percentage available; however, it is difficult to know whether that percentage was based on the quality of the information or was rewarded as an enticement for others to come forward. Either way, the SEC’s whistleblower program is critical to protecting U.S. capital markets and investors from fraud.
If you suspect that your employer is violating securities laws, you may be entitled to a reward. An attorney experienced in representing whistleblowers can advise you of your eligibility of the reward and ensure that your identity and rights are protected, should you decide to come forward with evidence of wrongdoing.