SEC Issues Largest Whistleblower Awards Ever
Commentary by Steven Lofchie
The SEC awarded its largest whistleblower payments to date, splitting approximately $50 million between two whistleblowers and giving more than $33 million to a third whistleblower. The law firm representing the claimants stated that the tips led to the SEC's $415 million settlement for violations of Exchange Act Rule 15c3-3.
As explained in the Order, the SEC determined that the first two whistleblowers contributed information that became the "cornerstone" of the initial SEC investigation into the offending company's misconduct, ultimately leading to the significant settlement. The SEC noted that it awarded lesser amounts to these two whistleblowers because they "unreasonably delayed in reporting their information to the Commission." The SEC stated that the third whistleblower provided timely and significant information, as well as "follow-up assistance" in connection with the ensuing investigation.
Commentary
Monday’s record-breaking whistleblower award re-enforces what the SEC has consistently been telling us: the SEC’s whistleblower program is a “game-changer” and plays a crucial role in the success of many enforcement actions. Today’s announcement also further demonstrates the SEC’s commitment to its whistleblower program and its reliance on whistleblowers to expeditiously report corporate misconduct. Here, the three whistleblowers’ combined reward was approximately 3 million, or 20 percent of the 15 million in penalties paid to the SEC to settle charges.
Under the whistleblower program, the maximum whistleblower award is 30% of the money collected from the successful action. The SEC explained in its order that it awarded lesser amounts to two of the three whistleblowers—approximately 5 million each whereas the third whistleblower received over 3 million—because they “unreasonably delayed in reporting their information to the Commission.” This note, and the corresponding award percentage to these two whistleblowers, further emphasizes that timeliness of reporting will considerably affect a whistleblower’s award amount, regardless of the size of the overall penalty paid to the Commission. While the decision to become a whistleblower often requires significant thought, a delay in reporting can have multi-million dollar consequences.
For more information regarding the Supreme Court’s recent decision narrowing the definition of whistleblower under Dodd-Frank, click here.
This comment was co-authored by Stephen Weiss.
Commentary
It was notable that the law firm representing the whistleblowers disclosed the enforcement case as to which the award was made. Given that violations of Rule 15c3-3 would likely only be spotted by persons working in close proximity to the relevant misconduct, it raises a question as to whether the identity of the whistleblowers can be determined. Perhaps, given the size of the awards, the whistleblowers did not care whether their identities were known as they no longer need to work.
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