SEC and CFTC Each Announce Whistleblower Awards

The SEC and the CFTC each awarded almost $2 million to whistleblowers for providing information that helped the agencies bring successful enforcement actions.

The SEC awarded a whistleblower almost $2 million for providing new information that SEC staff was not aware of concerning ongoing fraud. Although the whistleblower did not submit the tip that led to the opening of the investigation, the whistleblower provided information that caused the SEC to seek a temporary restraining order and freeze assets to prevent additional investors losses and helped investors to recover much of their investments. Additionally, the SEC noted that the whistleblower provided ongoing assistance and suffered hardships as a result of the disclosure of the information.

The CFTC awarded four whistleblowers over $2 million. The shared award was for disclosure of information that led to a CFTC investigation that resulted in a finding of a CEA violation. In this instance, the CFTC received whistleblower applications from five claimants. The CFTC recommended that four of the claimants share in the award because they provided "specific, credible, and timely" information regarding unusual activity that they witnessed, as well as offered significant ongoing assistance to the CFTC. The fifth applicant was denied an award in the Preliminary Determination because the information offered was not useful. The applicant then failed to submit a request for reconsideration, so the denial of the award became final. The CFTC also noted that the information provided led to enforcement actions brought by other regulators.

Commentary

The frequency of whistleblower awards in 2020 should only reinforce to companies the importance of ensuring that they have (i) adequate internal reporting mechanisms for suspected misconduct, (ii) procedures for addressing reports of misconduct, and (iii) procedures for preventing retaliation. Anonymous internal reporting options, such as a hotline (or helpline or lockbox), that are managed by an independent third party, or an internal function that sits outside the business (e.g., compliance), are great ways to ensure that actionable intel is handled appropriately.

Additionally, the SEC award demonstrated that a whistleblower does not have to be first in line to receive an award, as the quality of the information is just as important as the timing. In the SEC matter, the whistleblower had both, as the information was significant and timely enough to allow harmed investors the ability to recover a large portion of their investments.

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