The Securities and Exchange Commission’s Whistleblower Program provides potentially sizeable rewards to eligible whistleblowers who submit “original information” to the Securities and Exchange Commission. The SEC Whistleblower Program, enacted through the Dodd-Frank Wall Street Reform and Consumer Protection Act, has now paid over $1 billion to whistleblowers who provided the SEC with tips uncovering myriad forms of corporate wrongdoing. Through this public-private partnership, the government has recovered billions of dollars.
What is Original Information?
The SEC whistleblower program defines “original information” to mean that the information must meet certain criteria. Chief among them is the requirement that the information must be derived from the whistleblower’s independent knowledge or independent analysis (independent analysis may be based on public information). A whistleblower is not required to have first-hand knowledge of the wrongdoing either (e.g., a whistleblower may gain “original information” from social interactions). In addition, the SEC must not have already known of the information from some other source. So, if another whistleblower has already apprised the SEC of the same information, then the information would not qualify as “original information.”
What Sort of Conduct is Covered by the SEC’s Whistleblower Program?
The SEC’s Whistleblower Program provides eligible whistleblowers with monetary awards for submitting information relating to a wide range of conduct by companies and individuals. Given that the SEC’s jurisdiction is vast, the potential wrongdoing that falls within the scope of the whistleblower program is similarly broad. For example, SEC whistleblowers can raise allegations including (but not limited to) the following:
- Stock Price Manipulation
- Corporate Disclosure Violations
- Insider Trading
- Accounting Standard Violations
- Market Manipulation
- Offering Fraud
- Illegal Front-Running
- Abusive Naked Short Selling
- Foreign Corrupt Practices Act Violations
- Pump and Dump Schemes
- Cryptocurrency Fraud
- Decentralized Finance Fraud
- Dark Pool Fraud
- Money Laundering
- Pyramid Schemes
- Ponzi Schemes
In sum, the SEC whistleblower program covers conduct where some form of federal securities violation is at issue. Notably, the violation does not need to occur at a publicly traded company, and thus whistleblowers may expose wrongdoing at privately held companies as well.
How Does the SEC Whistleblower Program Work?
Unlike whistleblowing under the False Claims Act, an SEC whistleblower does not file a lawsuit. Rather, an SEC whistleblower submits a “tip, complaint, or referral” form directly to the SEC apprising the agency of the securities violation(s) at issue. The SEC then determines whether the claim is worth pursuing. .
If the SEC investigates and pursues the information provided by the whistleblower, and the whistleblower’s original information leads to a successful SEC enforcement action yielding a recovery over $1 million, then an eligible whistleblower may claim a monetary award.
Who Can Be an SEC Whistleblower?
The SEC’s whistleblower program provides awards to a wide range of whistleblowers.
As a general rule, to be eligible for an award, the whistleblower must:
- Voluntarily provide the tip, complaint, or referral to the SEC;
- Offer original information to the SEC;
- The information must lead to a successful administrative or court action; and
- The SEC must obtain monetary sanctions greater than $1 million in said action.
Notably, both corporate insiders and outsiders can be SEC whistleblowers. In fact, in 2020, 40% of award recipients were corporate outsiders. Further, both U.S. citizens and non-citizens are eligible for awards as well (e.g., a non-citizen in a foreign country can receive an award). Multiple whistleblowers can also submit information jointly, combining their knowledge to provide more valuable information to the government.
For certain individuals (e.g., compliance personnel) special rules may apply governing award eligibility. However, in many cases these individuals may still qualify for an award.
Can Whistleblowers Use an Attorney?
Yes, securities whistleblowers may employ attorneys to submit information to the SEC and seek an award. Experienced whistleblower attorneys can prepare the submission to, and interact with, the SEC which may increase the odds that the SEC pursues the case, a necessary step to the government’s recovery and payment of a monetary award for qualified whistleblowers. Given the complex nature of the securities laws and related violations, SEC whistleblower attorneys can help to ensure that the whistleblower’s information is presented to the government in a compelling manner that demonstrates precisely how the securities laws have been violated. Further, whistleblower attorneys can take steps to ensure that the whistleblower’s information is submitted in a procedurally and substantively appropriate manner that avoids technical missteps by the whistleblower.
Can I Blow the Whistle Anonymously?
As long as you retain an attorney to submit information to the SEC, then you can submit your information anonymously and remain eligible for an award. If you do not retain counsel, then you cannot submit your tip, complaint, or referral anonymously and receive an award.
Do All SEC Whistleblower Tips Lead to an Award?
No. The tip must lead to a successful enforcement action by the SEC and certain other requirements must also be met (e.g., the whistleblower must have provided “original information”). Each year the SEC receives thousands of tips, but the SEC pays an award to a fraction of whistleblowers (generally, dozens of awards per year).
Thus, securities whistleblowers should endeavor to present their information in the most complete and compelling manner possible in order to increase the likelihood that the SEC will take up the matter. Experienced whistleblower attorneys can aid in both presenting the whistleblower’s information to the SEC and in interfacing with regulators.
How Large are SEC Whistleblower Awards?
Awards under the program vary, but the amount awarded is based on the amount recovered through an SEC enforcement action – between 10% and 30% of the SEC’s recovery. Also, the SEC recovery must exceed $1 million. Whistleblowers may also be eligible for awards for so-called “related actions” (i.e., successful actions pursued by other governmental entities which relate to the initial, successful SEC tip and where the SEC itself obtains $1 million or more in the SEC action).
SEC awards can be very large. The average SEC whistleblower award is approximately $4.8 million. However, in exceptional cases, awards can eclipse $100 million (the largest to date being $114 million). While there is great variance among whistleblower awards, even the average successful SEC whistleblower receives substantial compensation.
Awards appear to be increasing dramatically too. Of the $1 billion paid out to SEC whistleblowers since 2012, over $500 million of that sum was paid out in fiscal year 2021 alone. The SEC’s two largest awards were issued in 2020 and 2021.
Can I Be Retaliated Against for Submitting a Tip to the SEC?
The Dodd-Frank Act establishes that an employer cannot retaliate against an employee for submitting a complaint, tip, or referral to the SEC under the whistleblower program. If an employee is subject to such retaliation, then he or she may file a lawsuit against his or her employer for damages and other relief.
Further, not only does the Dodd-Frank Act allow one to blow the whistle anonymously, but the law also sets out that the SEC, subject to certain exceptions, cannot reveal information that would reasonably be expected to disclose the identity of an SEC whistleblower. This provides yet another level of protection for securities whistleblowers.