Do You Need to Report Violations Internally Before Reporting to the SEC?
The SEC Whistleblower Program is a power tool in the U.S. designed to incentivize individuals to report possible violations of securities laws. It does not mandate that individuals report potential securities law violations to their company before reporting to the SEC.
Written By
KKC Staff
Reviewed By
Updated
June 16, 2023
The SEC Whistleblower Program is a powerful tool in the U.S. designed to incentivize individuals to report possible violations of securities laws.
However, many whistleblowers face an important question: Should they report the suspected violation to their company before submitting a tip to the SEC?
This short FAQ seeks to clarify the SEC’s position on this matter and provide a clearer understanding of your rights as a whistleblower.
We’re thrilled to welcome ex-SEC Acting Chair, Allison Herren Lee, to our team.
Now Of Counsel at Kohn, Kohn & Colapinto, Allison Herren Lee is ready to serve and protect whistleblowers, and help them seek rewards under the Dodd-Frank Act and SEC Whistleblower Program. If you’re an SEC whistleblower seeking to report a concern, contact our law firm today to speak confidentially with Allison Lee.
Understanding Internal and External Reporting
The SEC Whistleblower Program does not mandate that individuals report potential securities law violations to their company before reporting to the SEC.
You are allowed to submit a tip directly to the SEC without first going through internal channels. This means that employees, contractors, or even members of the public can provide information to the SEC without any obligation to report internally first.
However, the SEC does encourage internal reporting where appropriate, because it can help companies to identify and address issues more quickly. The rules of the SEC Whistleblower Program have been designed to incentivize internal reporting in certain situations.
Incentives for Internal Reporting
Under the SEC Whistleblower Program, individuals who report potential violations internally before going to the SEC may be eligible for larger award percentages. The rules of the program allow the SEC to consider whether the whistleblower reported the violation to their company in a timely manner when determining the size of the award.
Also, if a whistleblower reports a potential violation to their company and the company then reports that information to the SEC, the whistleblower is credited with all the information provided by the company to the SEC, even if the company’s report includes additional information beyond what the whistleblower originally reported.
Balancing Considerations
While the incentives for internal reporting are alluring, it’s also important to weigh potential risks. Some whistleblowers may fear retaliation from their employer, such as demotion, harassment, or even termination. The SEC provides certain protections against retaliation, but the effectiveness of these protections can depend on the specifics of the situation.
Moreover, there may be cases where reporting internally might not be the best course of action, especially if senior management is involved in the wrongdoing or if the company has a history of ignoring reports or retaliating against whistleblowers.
Before making a decision, it’s strong advised that insiders keep information to themselves, and may decide to consult with an SEC whistleblower attorney familiar with the SEC’s Whistleblower Program and the protections that they offer.
Our team of top-tier whistleblower attorneys can provide guidance based on the specific situation, and strategies for maximizing potential awards and avoiding retaliation.
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