Under the securities fraud whistleblower program enacted by Securities and Exchange Commission (SEC), individuals who provide the SEC with “original information” about federal securities fraud violations may be entitled to receive a financial award ranging from 10 percent to 30 percent of any monetary sanctions obtained by the SEC. There are, of course, limitations and conditions—some of which are discussed below.Frequently Asked Questions (FAQs)
- Who Can Be a Whistleblower?
- What Type of Information Should Be Provided?
- How Much Can Be Awarded?
- Should Whistleblowers Report the Violations to Their Employer First?
- Are Whistleblowers Protected against Retaliation by Their Employer?
- Is an Attorney Necessary?
A whistleblower must be an individual, not a company or other entity. To be eligible, the information must be voluntarily provided. In other words, the individual must come forward with the information before receiving an inquiry from the SEC or other designated authority.
There are additional requirements and limitations on the ability of certain categories of individuals to become whistleblowers including: attorneys, accountants, company officers, directors, trustees, partners and compliance personnel.
The information submitted must relate to a violation of federal securities laws (or SEC rules/regulations), rather than state or foreign laws. The information provided must be original and lead to the successful enforcement of a judicial or administrative action. The information should be based on the whistleblower’s independent knowledge, experiences or observations and cannot be derived from publicly available sources. However, an individual who provides information already known to the SEC may still be eligible if the individual's own analysis materially adds to the information that the SEC has.
The whistleblower bounty provision kicks in once the SEC receives monetary sanctions totaling more than $1,000,0000. The total award paid must be at least 10% and no more than 30% of the total monetary sanctions collected. Congress gave the SEC complete discretion to decide the percentage amount that a whistleblower can be awarded. If there are several whistleblowers, this percentage may be split. For example, it is possible for a whistleblower to receive an award of 25% and another to receive an award of 5%. Although there are no mathematical criteria for determining award percentages, the SEC will consider the following positive and negative factors:
Positive factors that will increase an award
- Nature and significance of the information provided by the whistleblower and the degree of success achieved as a result.
- Assistance provide by the whistleblower, including ongoing extensive and timely cooperation.
- Unique hardships experienced by the whistleblower as a result of their involvement.
- Law enforcement interest in deterring the type of securities law violations involved.
- Participation by the whistleblower in their company’s internal compliance system.
Negative factors that will decrease an award
- The whistleblower’s level of culpability in the securities violations.
- The length of time or delay in reporting the securities violations.
- The whistleblower’s interference with their company’s internal reporting system or hindrance of the SEC’s investigation.
Participation in an employer’s internal compliance program is not a requirement to receive an award. However, as noted above, it is a factor considered by the SEC when determining the percentage amount that will be awarded. For this reason, whistleblowers need to carefully weigh the benefits of reporting a potential securities violation to their employer.
A whistleblower that provides information to the SEC or assists in an investigation may not be discharged, demoted, suspended, threatened, harassed or discriminated by their employer. Employers who violate the anti–retaliation rules must: (1) reinstate the employee to the same seniority status; (2) pay the employee 2 times the amount of their back pay; and (3) pay interest, attorney fees and costs.
An attorney is not required to participate in the SEC’s whistleblower program. However, if a whistleblower wants to submit information to the SEC anonymously, they must be represented by an attorney. In addition to allowing a whistleblower to submit their information anonymously, an attorney can help ensure that the whistleblower qualifies for the maximum award possible by providing ongoing guidance and assistance throughout each step of the process, including the following:
- Presenting eligible information to the SEC’s Office of the Whistleblower.
- Providing further assistance, information, declarations and testimony to regulators.
- Monitoring the progress of enforcement activities.
- Preparing a timely application for award in the SEC action and all related actions.
- Reviewing, negotiating and contesting the SEC’s award determination (if necessary).
- Filing an appeal of the award determination in court (if necessary).