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SEC Whistleblower Program: Qualifying for Awards

SEC Whistleblower Rewards - Kohn, Kohn & Colapinto LLP

The SEC Whistleblower Program provides monetary awards to eligible securities fraud whistleblowers whose information leads to successful enforcement actions resulting in total monetary sanctions of at least $1 million. The amount of the award can range from 10% to 30% of the total monetary sanctions collected in SEC actions and related actions brought by other authorities. Whistleblowers may also submit their tips anonymously if they are represented by an attorney.

Whistleblowers can qualify for financial awards if they provide the SEC with credible, timely, and original information and assistance. The SEC has published rules outlining the procedures for filing and obtaining these awards. Additionally, the program prohibits employers from retaliating against employees who provide information about possible securities violations.

Continue reading to learn more about the SEC Whistleblower Program.

Key Takeaways

  • The SEC Whistleblower Program gives whistleblowers the ability to obtain a financial award of between 10 and 30 percent of the money collected, similar to other qui tam award laws, such as the False Claims Act and the IRS Whistleblower Program.
  • Non-U.S. citizens who blow the whistle on potential securities frauds committed by publicly traded companies outside the United States are eligible to receive awards, as well as those whistleblowers report violations of the Foreign Corrupt Practices Act.
  • The SEC offers whistleblower protection and preserves the confidentiality of whistleblowers, and permits anonymous filings. To be eligible for an award whistleblowers must file a claim with the help of an attorney.
  • The SEC Whistleblower Program has strong anti-retaliation law that allows whistleblowers to file retaliation cases in the U.S. District Court to obtain double back pay, reinstatement, reasonable attorneys’ fees, and reimbursement for certain costs.
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Our firm welcomes former SEC acting chair and commissioner Allison Herren Lee

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.

Qualifying for SEC Whistleblower Awards

The SEC Whistleblower Program offers awards to individuals who provide information leading to sanctions of $1 million or more. The award amount ranges from 10% to 30% of the money collected, with a minimum of 10% and a maximum of 30% of the sanctions obtained by the SEC.

A whistleblower (typically a company insider) can blow the whistle; however, companies and organizations cannot be whistleblowers. Please note that it is not required for a whistleblower to be an employee, and multiple whistleblowers may be eligible for a reward as long as the total amount paid to all whistleblowers does not exceed 30% of the sanctions.

Whistleblowers who report violations of the Foreign Corrupt Practices Act by publicly traded companies outside the United States are also eligible for rewards.

SEC Whistleblower Reward Eligibility Requirements

“I want to note our appreciation to whistleblowers who, sometimes at great risk to their livelihood, report suspected securities laws violations to the SEC. Our whistleblower program has been a success because of their efforts. Working together, we have stopped frauds and prevented losses for countless investors”

Mr. Jay Clayton, Chairman and Chief of The SEC

“The SEC whistleblower program…has rapidly become a tremendously effective force-multiplier, generating high quality tips, and in some cases virtual blueprints laying out an entire enterprise, directing us to the heart of the alleged fraud.”

Chairman Mary Jo White, Securities and Exchange Commission, Remarks at the Securities Enforcement Forum, Washington DC (October 2013)

The SEC has awarded approximately $1.2 billion to 249 individuals since issuing its first award in 2012. Payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards.

SEC Whistleblower Program Annual Reports to Congress

[Read More]

How Awards are Determined

The amount a whistleblower receives depends on the detail of evidence submitted by the whistleblower. Under Rule 21F-6(c), there is a 30% presumption if the award amount is $5 million or less and there are no negative factors.

This presumption may be overruled if a whistleblower provides limited assistance or if a maximum award would be contrary to investor protection. Under the SEC Whistleblower Program, If an award is over $5 million, the Commission will look at several factors to determine the award amount, based on information from each case. 

Increases in award amounts include:

  • Information Significance – The significant of information provided to the Commission
  • Assistance – any assistance provided by the whistleblower during the investigation
  • Case Interest – Commission law enforcement interest in deterring violations at the time
  • Internal Compliance – the whistleblowers involvement in internal reporting before, or at the same time, they reported violations to the Commission.

Decreases in award amounts include:

  • Culpability – was the whistleblower submitting the TRC involved in the fraud or scheme? If so, they are not entitled to a full 30% of the award amount.
  • Unreasonable Reporting Delay – did the whistleblower delay submitting pertinent information? Delay often means it gives perpetrators time to hide important information.
  • Interference With an Internal Compliance Systems – was the whistleblower involved in preventing compliance teams from coming forward with information?

Due to the complexity of filing a sec form TCR, and to file anonymously we recommend contacting an SEC Whistleblower attorney to walk you through the process. Information must be provided in a form required under strict whistleblower rules (see 21F-9).

Successful Investigations

The Commission is more likely to follow up on SEC tips that are specific, credible, and timely. This means that the sooner you file a sec form TCR (“Tips, Complaints, Referral”), the greater the likelihood it will be forwarded to a staff member for further investigation and follow-up.

Specific and credible information may include the parties involved in a particular fraud or scheme, financial records and reports, or non-public information revealing details about a fraud or scheme. The SEC Whistleblower Program and Reward law covers several types of types of fraud and wrongdoing involving potential violations, which may include:

Process for Reporting Securities Violations or Fraud

To qualify for an SEC whistleblower award under the SEC Whistleblower Program, a whistleblower must submit information regarding possible securities law violations to the Commission either virtually or by mail. Whistleblowers who plan to submit an anonymous tip must have an attorney represent them in connection with their submission of information and claim for an award.

Here are the general steps in filing a complain and applying for an award:

  1. Gather Information: Gather as much information as possible about the securities fraud or violation, including dates, times, people involved, and any relevant documents or evidence.
  2. Submit a Tip: Submit a tip to the SEC online, or by mailing it or faxing it; you can also contact the SEC’s Office of the Whistleblower by phone.
  3. Wait for Response: Wait for the SEC to acknowledge receipt of your complaint and provide you with a unique whistleblower identification number (WIN).
  4. Provide Additional Information: If the SEC decides to investigate your tip, it may contact you for additional information.
  5. File for a Reward: If the SEC is successful in an enforcement action, you may be eligible for a monetary reward. To file for a reward, submit a completed Form WB-APP to the SEC within 90 days of a final judgment or settlement.

It is important to note that filing a whistleblower complaint with the SEC is a serious matter and should be done with the guidance of an experienced SEC whistleblower attorney.

Additionally, not all tips result in successful enforcement actions, and not all tips are eligible for rewards. Keep in mind, before the Commission will pay any award to you, you must disclose your identity, and it must be verified by the Commission.

How Does the SEC Process the APP Application?

The Commission has created a “Claims Review Staff” (“CRS”), which is independent of the Office of the Whistleblower. Their job is to review applications and obtain affidavits from the SEC investigators who are responsible for the underlying enforcement action. 

These investigators know who the whistleblowers were, and what information they relied upon to take the enforcement action. Their statements, which are not public, usually form the basis for the CRS to issue an initial decision.

Once the whistleblower obtains a copy of the initial ruling from the CRS, he or she can accept that ruling. If there is no appeal of the initial ruling of the CRS, and if the Commission approves that initial ruling, the whistleblower cannot challenge the SEC’s decision in court.

A whistleblower can seek to review the documentation relied upon by the CRS. This material is only provided to the whistleblower if he or she signs a nondisclosure agreement, as the SEC maintains that this documentation is part of their confidential decision-making process.

The whistleblower can file an internal appeal of the decision of the CRS. The whistleblower can also request a meeting with employees of the Whistleblower Office or the CRS to discuss the whistleblower claim. After an appeal of the initial decision of the CRS, the Commission staff will finalize its recommendation to the full SEC Commission.

The full SEC Commission reviews the CRS’s final recommendation. If no Commissioner requests a vote on the recommendation, the recommendation becomes final. The Commission can also take jurisdiction over the matter and issue a final decision based on the record.

Protection Against Retaliation

The Dodd-Frank Act prohibits employers from retaliating against individuals who provide information to the SEC or assist the agency. Whistleblowers who experience job retaliation can sue for reinstatement, double back pay, and other damages. Retaliation may include discharging, demoting, harassing, suspending, or discriminating against a whistleblower for assisting the Commission in an investigation.

The SEC also has the authority to take enforcement actions against companies that retaliate against employees for reporting potential securities law violations. Exchange Act Rule 21F-17(a) prohibits actions that impede an individual from communicating directly with the Commission staff about a possible securities law violation. The SEC has imposed significant fines on companies that have violated the SEC whistleblower statute.

Keep in mind that the Dodd-Frank Act offers a long statute of limitations (up to 6 years) for reporting financial misconduct and reduces rewards for whistleblowers who unreasonably delay reporting a violation.

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Frequently Asked Questions

The SEC’s whistleblower program pays eligible whistleblowers a reward of between 10 and 30 percent of the sanctions collected in cases over $1 million, when they voluntarily provide the SEC with high-quality original, timely, and credible information and assistance.

There are many violations covered under the SEC’s whistleblower program. This includes ponzi or pyramid schemes, theft or misuse of securities, market manipulation, insider trading, abusive naked short selling, misleading financial statements, bribery, and cryptocurrency fraud.

Payouts are determined by the quality of information provided to the SEC in the original whistleblower claim submission, and how it aided in the investigation. However, payouts are determined by many factors, such as the timeline in which the information was brought to the SEC, your role in the fraud or scheme, whether you benefited from it, and more.

The statute of limitations for an SEC whistleblower award case is established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under Section 922 of the Dodd-Frank Act, a whistleblower must submit a tip or complaint to the SEC within 180 days after the whistleblower becomes aware of the misconduct or after the whistleblower reports the misconduct internally and the company fails to address the issue within 120 days.

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