On March 11, the U.S. Securities and Exchange Commission (SEC) issued a whistleblower award of approximately $14 million to an individual who published an online report detailing an ongoing fraud. Following the publication of the report, the individual repeatedly reached out to the SEC about the fraud and eventually submitted a formal whistleblower disclosure with the agency. The SEC also denied an award application for a second individual who was also involved in the publication of the report but who, in contrast, did not directly contact the SEC about the violations.
According to the SEC, the online report contained credible and high quality information about an ongoing fraud which prompted the opening of an investigation. The investigation in turn led to a successful enforcement action which allowed millions of dollars to be returned to harmed investors.
Through the SEC Whistleblower Program, qualified whistleblowers, individuals who voluntarily provide original information that leads to a successful enforcement action, are entitled to an award of 10-30% of the funds collected by the government. To be eligible for a whistleblower award, an individual must formally file a disclosure with the SEC via a Form TCR.
Upon a preliminary review, the SEC denied the awarded whistleblower’s award claim due in part to the fact the individual did not file a Form TCR until four years after posting the online report and two months after the SEC posted a Notice of Covered Action for the relevant enforcement action. The SEC also claimed that the individual did not give the information to the SEC “voluntarily” because the agency reached out to the individual for information following the publication of the report.
Upon review, however, the SEC decided to grant the individual an award. It determined that the whistleblower did in fact voluntarily disclose the information to the SEC by reaching out to an SEC enforcement attorney three days after posting the report on the internet. This was before the agency reached out to the whistleblower. Given that the whistleblower promptly contacted the enforcement staff after publishing the report and that the information provided to the agency was credible and high quality, the SEC decided to use its discretionary authority to waive the TCR filing requirement for the whistleblower and issue an award.
“Whistleblowers can play a critical role in an investigation,” said Creola Kelly, Chief of the SEC’s Office of the Whistleblower. “Here, the whistleblower posted a research report online outlining the allegations against the company and its officer and also, importantly, took expeditious steps to provide this information to the Commission. This case demonstrates the importance of whistleblowers reporting directly to the SEC so that the agency can promptly investigate allegations of wrongdoing.”
The SEC’s award order also details a denial of a whistleblower award application by another individual involved in the online report. Unlike the awarded whistleblower, this individual did not make any contact with the SEC following the report’s publication. In the order, the SEC explains the intent behind denying the award application:
“In rejecting Claimant 2’s award claim, we do not intend to diminish Claimant 2’s role in investigating the Company and in publicly exposing the wrongdoing at the Company through writing and publishing the online report. Nor do we wish to discourage others from undertaking similar efforts. However, our whistleblower program is designed ‘to motivate those with inside or special knowledge to come forward and assist the Government to identify and prosecute persons who have violated securities laws and recover money for victims of financial fraud.’ To that end, Section 21F and our whistleblower rules unambiguously require individuals to provide their original information directly to the Commission and in the manner prescribed by the rules, if they wish to pursue a whistleblower award.”
On March 11, the SEC Whistleblower Program also issued two other final orders. One order grants a whistleblower a $38,000 award and denies the application of another individual. According to the order, the awarded whistleblower “made a detailed and credible report to the Commission” and “also provided substantial assistance by providing new and helpful information and useful documents concerning fraudulent conduct and met with investigative staff, including the provision of investigative testimony.” According to the order, the denied claimant’s information was already known by the SEC. Furthermore, the individual was a compliance officer and did not not fall within any of the exceptions to the compliance officer eligibility exclusion.
The other order issued by the SEC details award denial for three claimants. According to the order, none of the information submitted by the claimants contributed to the success of the covered enforcement action.
Since issuing its first award in 2012, the has awarded approximately $1.2 billion to 249 individuals. Individuals considering blowing the whistle to the SEC should first consult an experienced SEC whistleblower attorney.