After Reporting Internally, Whistleblower Goes to SEC and Receives $9 Million Award
On July 12, the U.S. Securities and Exchange Commission (SEC) announced a whistleblower award of over $9 million. The awarded whistleblower provided the agency with original information which contributed to the success of an enforcement action.
According to the SEC, the whistleblower repeatedly internally reported the concerns before blowing the whistle to the agency. The order notes that a rule disqualifying whistleblowers who serve as an “employee whose principal duties involve compliance or internal audit responsibilities” does not apply in this case because the whistleblower “reported the information internally to his/her supervisor and then waited at least 120 days to report the information to the Commission.”
Through the SEC Whistleblower Program, qualified whistleblowers are entitled to an award of 10-30% of the funds collected by the government in the enforcement action connected to their disclosure. The SEC weighs a number of factors, including the timeliness of disclosure and degree of further assistance provided, when determining the exact percentage to award a whistleblower.
According to the SEC, in this case the agency considered that the whistleblower “provided highly significant and detailed information that alerted Enforcement staff to the underlying conduct, prompting the opening of the investigation; his/her information bears a close nexus to the charges brought by the Commission in the Covered Action; he/she provided critical and ongoing assistance throughout the investigation, including meeting with Enforcement staff multiple times; Claimant repeatedly raised concerns internally; and that millions of dollars have been returned to harmed investors as a result of the Claimant’s information and assistance.”
“The whistleblower in this case provided critical information and continuing assistance that helped the agency recover millions of dollars for harmed investors,” said Creola Kelly, Chief of the SEC’s Office of the Whistleblower.
While the SEC positively assessed the fact that the whistleblower reported his/her concerns internally the whistleblower program’s anti-retaliation protections do not extend to internal whistleblowers. The 2018 Supreme Court ruling in Digital Realty Trust, Inc. v. Somers held that an individual must report directly to the SEC in order to be considered a whistleblower under the Dodd-Frank Act and thus afforded anti-retaliation protections.
Among other reforms, the bipartisan SEC Whistleblower Reform Act of 2023 extends anti-retaliation protections to whistleblowers who report internally. Allison Herren Lee, former SEC Commissioner and current Of Counsel at Kohn, Kohn & Colapinto, recently wrote an article calling for the passage of the bill.
