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SEC Awards $50 Million to Two Whistleblowers

lex.urban@cwt.com's picture
Commentary by Lex Urban

The SEC awarded $50 million to two whistleblowers for providing information that helped the agency to bring a successful enforcement action.

According to the SEC Order Determining Whistleblower Award Claims, which redacted many key case facts, one whistleblower received $37 million, while the other received $13 million. The SEC noted that $37 million is the agency's third-highest award to date.

Two other whistleblowers were denied awards because their original information, the SEC noted, did not cause the staff to do any of the following:

  • commence an investigation;
  • open or reopen an investigation;
  • inquire into different conduct as part of a current SEC examination or investigation; or
  • significantly contribute to the success of an existing SEC examination or investigation.

Since issuing its first whistleblower award in 2012, the SEC has granted roughly $376 million to 61 informants and recovered over $1.7 billion in enforcement matters involving whistleblower information.

Commentary

These awards demonstrate the SEC's continued willingness to reward whistleblowers who come forward to help stop illegal conduct, even if they could have volunteered the information sooner and, therefore, are not completely devoid of some level of culpability. In this instance, one whistleblower – who received $13 million – "unreasonably delayed" reporting information to the Commission, during which time investors continued to suffer financial harm. Moreover, the whistleblower passively benefited from the underlying misconduct during a portion of that delay. The SEC clearly took these facts into account when determining the level of awards to the two whistleblowers, as the second received $37 million. But this raises a recurring issue with the Whistleblower Program: should those who are not blameless be able to receive monetary awards for coming forward? The answer for now, absent "directing, planning or initiating" criminal conduct, is yes. The SEC has made clear that the benefit of stopping the illegal conduct outweighs the drawbacks of rewarding a whistleblower who could have acted sooner.

Also interesting is that two other whistleblowers were denied awards. One who was denied an award arguably provided the first tip, but did not provide information that significantly contributed to the success of the action. The other whistleblower was denied an award because he/she failed to file a claim for an award within the 90-day window. This whistleblower argued that the SEC never alerted him/her that they needed to file a claim, an argument that has almost always failed, absent "extraordinary circumstances" permitting the Commission to waive the filing deadline. This is yet another reminder that attention to the Whistleblower Award Program rules and procedures can have million-dollar consequences.

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