The United States Securities Exchange Commission (SEC) established in 2011 a whistleblower program and associated rules pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The purpose of the program is to encourage individuals to alert the SEC to evidence that helps the SEC in bringing securities fraud cases. The Rules were designed under the Act to increase the SEC’s authority to compensate whistleblowers regarding violations of the federal securities laws.
The Rules set out several requirements for a whistleblower to be considered for an award of compensation. The whistleblower must voluntarily provide the SEC with original information regarding violations of the federal securities laws, rules, or regulations that leads to the enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than one million dollars. The program also covers “related actions” which includes judicial or administrative actions by the U.S. Attorney General, regulatory authorities, self-regulatory organizations, or criminal prosecution by a state attorney general.
In regard to the “original information” requirement, the Rules contain complex requirements, limitations, and exceptions to information acquired through attorney-client privileged situations, and information obtained as an officer, director, trustee, partner, or compliance/audit employee. In certain circumstances, the Rules require disclosure of the information to the relevant entity within a specified time frame for the whistleblower to be entitled to payment under the Rules.
The amount of the award to the whistleblower will be decided by the SEC, however if the Rules’ requirements are met, the award will be between 10 and 30 percent of the monetary sanction that the SEC and other authorities are able to collect. The SEC will exercise its discretion in determining the exact percentage based on criteria set out in the Rules, although some presumptions apply for actions resulting in sanctions of less than $5 million. Some of the positive and negative criteria to be applied by the SEC in the decision-making process include significance of the information, assistance provided by the whistleblower, law enforcement interest, participation in internal compliance systems, culpability, unreasonable reporting delay, and interference with internal compliance systems.
The SEC has awarded over on billion dollars in whistleblower awards to whistleblowers since the program was established in 2011. The largest whistleblower award was for $114 million in 2020.
The award amount may also be divided by the SEC among multiple whistleblowers. Should the SEC deny payment, the Rules provide for an appeals process as well as an ultimate appeal to the U.S. Court of Appeals for the District of Columbia, or the circuit where the aggrieved person resides.
The SEC has provided specific forms for submission of information and a claim for an award. A whistleblower may remain anonymous when providing the information to the SEC, however, to do so the whistleblower must be represented by a whistleblower lawyer with respect to the submission of information and claim for an award.
The Act and Rules also provide protections for the whistleblower from retaliation by the whistleblower’s employer, providing certain requirements are met.
The Virginia Whistleblower lawyers at Greco & Greco, P.C. represent investors and individuals across the country in claims related to securities fraud. If you believe you may have a claim or information to report to the SEC, please contact Scott Greco for a free attorney consultation.