Understanding the SEC Whistleblower Program and Related Actions

Related actions are an integral part of the SEC’s Whistleblower Program. They extend the potential rewards a whistleblower might receive. According to the SEC, a “related action” refers to a successful judicial or administrative action brought by certain governmental or regulatory entities. This action must be based on the same original information that the whistleblower voluntarily provided to the SEC.

To qualify as a related action, and hence for a whistleblower to be eligible for an award from that action, the action must be brought by:

• The Attorney General of the United States: This is the head of the U.S. Department of Justice. An example of a related action here might involve the Attorney General’s office prosecuting a major securities fraud case, such as insider trading or market manipulation, based on the original information provided by the whistleblower to the SEC.
• An appropriate regulatory authority: This could include other U.S. federal agencies that have jurisdiction over certain types of financial or securities misconduct. For instance, the Commodity Futures Trading Commission (CFTC) oversees the derivatives markets and could bring a related action if the misconduct involves commodities futures or swaps.
• A self-regulatory organization (like FINRA): The Financial Industry Regulatory Authority (FINRA) oversees brokerage firms and their registered representatives. If a whistleblower’s tip involves misconduct by a broker-dealer, FINRA could bring a disciplinary action against the offending individual or firm.
• A state attorney general in a criminal case: State attorneys general have broad powers to prosecute violations of state law. If the securities misconduct also constitutes a violation of state law – such as securities fraud or embezzlement – the state attorney general could bring a criminal case. An example could be a state attorney general prosecuting a Ponzi scheme operator based on information provided by the whistleblower.
• Any other federal or state governmental authority, agency, or court that satisfies the SEC’s criteria: This is a broad category that could include a variety of entities. For instance, the Internal Revenue Service (IRS) might bring a related action if the securities misconduct also involves tax evasion. At the state level, the Department of Insurance might be involved if an insurance company is implicated in the misconduct. The Federal Reserve or the Office of the Comptroller of the Currency (OCC) could bring actions related to banking institutions. The Public Company Accounting Oversight Board (PCAOB) could also be involved if an accounting firm or auditor is implicated.

Additionally, the SEC action must result in monetary sanctions exceeding $1 million, the threshold necessary to qualify for a whistleblower award. If these conditions are met, the whistleblower may be eligible to receive an award based on the sanctions collected in both the SEC action and the related actions.

However, to prevent double-recovery under different whistleblower programs, the SEC will not consider an action as a “related action” if the whistleblower can potentially obtain an award for that action from another whistleblower award program administered by a U.S. government agency under federal law.

Navigating the SEC Whistleblower Program and its many facets can be complex. If you’re considering reporting a potential violation, it’s often wise to consult with a lawyer experienced in SEC whistleblowing. They can help guide you through the process, ensuring you are protected and maximizing the potential benefits you may receive.

Through the combined effort of the SEC and whistleblowers, the program can continue to promote integrity within the financial markets, holding organizations accountable for their actions and deterring future violations.