SEC Whistleblower Program: Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award Read online

consolidated earnings during a three-year period, ultimately leading to an $80 million penalty from the SEC.

  SEC Whistleblower Awards

  The table below identifies some of the larger whistleblower awards that the SEC has issued:

  $30 million

  September 22, 2014

  A foreign whistleblower came to the SEC with “information about an ongoing fraud that would have been very difficult to detect”

  This reward underscores that non-US citizens are eligible whistleblowers in the SEC Whistleblower Program

  $22 million

  August 30, 2016

  A former financial executive at Monsanto exposed weaknesses in the company’s internal controls that failed to account for millions of dollars in rebates Monsanto agreed to settle the allegations of accounting fraud for $80 million

  Importantly, auditors and accountants are eligible whistleblowers in the SEC Whistleblower Program They are often best positioned to witness this type of wrongdoing

  $17 million

  June 9, 2016

  A company insider “substantially advanced the agency’s investigation and ultimate enforcement action”

  This award highlights that whistleblowers may receive a reward if they provide original information regarding an open SEC investigation that significantly contributes to the success of the action

  $14 million

  September 30, 2013

  The whistleblower exposed a fraudulent offering that targeted foreign nationals who sought to invest in the U S economy and gain a legal pathway to citizenship through the EB-5 Immigrant Investor Program

  In 2016, the SEC increased staff in its investment adviser/investment company examination program As such, we expect to see an increase in the number of actions brought against investment advisers and companies in the coming years

  $7 million

  Date January 23, 2017

  Three whistleblowers split an award of more than $7 million after helping the SEC prosecute an investment scheme.

  One whistleblower provided information that was a primary impetus for the start of the SEC’s investigation. That whistleblower received more than $4 million. Two other whistleblowers jointly provided new information during the SEC’s investigation that significantly contributed to the success of the SEC’s enforcement action. Those two whistleblowers will split more than $3 million.

  $5.5 million

  January 6, 2017

  An anonymous whistleblower orally provided the SEC with critical information about ongoing securities fraud. Generally, the SEC requires that whistleblower provide information “in writing.” However, the SEC waived that requirement in this case due to “highly unusual circumstances” and awarded the whistleblower more than $5.5 million for the information.

  This award marks the second time that the SEC has deemed it appropriate to waive a procedural requirement. Former chief of the SEC whistleblower office, Sean McKessy, noted that this award underscores the SEC’s discretionary authority to do what justice requires.

  $5 million

  May 17,2016

  A former company insider’s detailed tip led the agency to uncover securities violations that would have been nearly impossible for it to detect but for the whistleblower’s information.

  In the SEC’s press release, it noted that employees are often best positioned to witness wrongdoing.

  $4 million

  September 30, 2016

  The SEC issued the award to an anonymous whistleblower for “alter[ing] the agency to a fraud”

  The lack of information about the whistleblower and the enforcement action underscores how serious SEC is about protecting the confidentiality of whistleblowers

  $3.5 million

  May 13, 2016

  The whistleblower “bolstered an ongoing investigation with additional evidence of wrongdoing” which helped the SEC during settlement discussions with the company

  $3.5 miillion

  December 5, 2016

  A whistleblower received an award of $3 5 million for providing original information to the SEC that led to a successful enforcement action

  WHISTLEBLOWERS ELIGIBLE FOR AN AWARD

  Who is an eligible SEC whistleblower?

  Most individuals, regardless of citizenship, may be “eligible” whistleblowers if they voluntarily provide the SEC with original information about a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur. The information provided must lead to a successful SEC action that results in monetary sanctions exceeding $1 million. One or more people can act as a whistleblower, but companies or organizations cannot qualify as whistleblowers. Furthermore, individuals are not required to be employees of a company to submit information about that company.

  Different eligibility rules apply to:

  • officers, directors, trustees, or partners of an entity, if another person informed them of allegations of misconduct, or if they learned the information in connection with the entity’s processes for identifying, reporting, and addressing possible violations of law;

  • employees whose principal duties involve compliance or internal-audit responsibilities, or those employed by, or otherwise associated with, a firm retained to perform compliance or internal-audit functions for an entity;

  • those employed by, or otherwise associated with, a firm retained to conduct an inquiry or investigation into possible violations of law; and employees of, and other persons associated with, a public accounting firm, if they obtained the information through the performance of an engagement required of an independent public accountant under the federal securities laws, and that information related to a violation by the engagement client or the client’s directors, officers, or other employees.

  Any of those individuals may be eligible for an SEC whistleblower award if:

  • his or her disclosure is necessary to prevent conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors; the entity is engaging in conduct that will impede an investigation of the misconduct; or at least 120 days have elapsed since either:

  -the whistleblower provided the information to the entity’s audit committee, chief legal officer, or chief compliance officer (or their equivalents), or to his or her supervisor; or

  -the whistleblower received the information, if he or she received it under circumstances indicating that the entity’s audit committee, chief legal officer, or chief compliance officer (or their equivalents), or the whistleblower’s supervisor was already aware of the information.

  Can I submit a tip if I was involved in the fraud or misconduct?

  Yes, but you should consult with an experienced securities-enforcement attorney before contacting the SEC to determine your potential liability. Once you submit a tip, the SEC can forward the information to other agencies, including the Department of Justice, for potential criminal investigations.

  Importantly, even though the SEC Whistleblower Program allows anonymous submissions through attorneys, the agency will issue an award only after it determines that the whistleblower is eligible for the award. The SEC may reduce the amount of an award if the whistleblower participated in, or was culpable for, the violation.

  Can I submit a tip if I agreed to a confidentiality provision in an employment/severance agreement?

  Yes. The SEC firmly rejects any employer’s attempts to impede an employee’s communication with the SEC about a possible securities-law violation by using instruments such as:

  • overly broad confidentiality provisions in severance or employee agreements;

  • waivers of the right to receive a whistleblower reward; or

  • agreements to notify the company’s legal counsel before disclosing information to government agencies.

  Can compliance personnel, auditors, officers, or directors qualify for an SEC whistleblower award?

  Many key compliance personnel, including internal auditors, external auditors, offi
cers, and directors, may incorrectly assume that they are not eligible for awards under the SEC Whistleblower Program. Under certain circumstances, however, the SEC allows these employees to report violations and become eligible for awards. In doing so, the SEC recognizes that key compliance personnel often are in the best position to recognize and expose fraud.

  When Can Key Compliance Personnel Report to the SEC?

  Generally, individuals who are integral to a company’s compliance are not eligible for awards, unless an exception applies. These individuals include employees whose principal duties involve compliance or internal-audit responsibilities, employees of public accounting firms, and even the officers, directors, trustees, and partners of the relevant entity.

  The exceptions to this rule, found in Section 21F-4 of the Securities Exchange Act, allow these individuals to report to the SEC and receive awards under the program if:

  • they reasonably believe the disclosure is necessary to prevent conduct likely to cause “substantial injury” to the financial interest or property of the entity or investors;

  • they reasonably believe the entity is engaging in “conduct that will impede an investigation of the misconduct”; or

  • at least 120 days have passed either since they properly disclosed the information internally, or since they obtained the information under circumstances indicating that the entity’s officers already knew of the information.

  The 120-day exception does not apply to external auditors who obtained the information during their audit of an issuer. Instead, those external auditors can report to the SEC immediately after they inform a superior in their accounting firm about