SEC Announces First Whistleblower Program Award

August 23, 2012

On August 21, 2012, the Securities and Exchange Commission (“SEC”) announced its first “whistleblower” award under the Dodd-Frank Act.  While the facts relating to the whistleblower and the related enforcement action were not identified, the particulars of the award were detailed in the SEC’s press release.  The award grants the whistleblower $50,000 immediately— a thirty percent stake in the total monetary sanctions the SEC has collected in the action and the maximum percentage allowed by law.  The whistleblower’s recovery will increase if the SEC collects additional sanctions.  The award comes just over a year since the SEC issued the final whistleblower rules and signals the SEC’s intent to encourage whistleblowers to come forward both by issuing the maximum allowable award and by maintaining the whistleblower’s confidentiality.

Dodd-Frank’s Whistleblower Provisions

The Dodd-Frank Act directs the SEC to “pay an award . . . to whistleblowers who voluntarily provide[] original information to the Commission that [leads] to” successful enforcement actions and results in monetary sanctions of more than $1 million.  15 U.S.C. § 78u-6(b).  The size of the award can range from ten to thirty percent of the monetary sanctions the SEC collects.  Id.  The Act also protects whistleblowers, prohibiting employers from retaliating against them and prohibiting the SEC from disclosing information provided by a whistleblower “which could reasonably be expected to reveal” the whistleblower’s identity.  15 U.S.C. § 78u-6(h).  In August 2011, the SEC issued final rules implementing these provisions and since has received an average of approximately eight tips per day. 

The Award and Denial

The SEC’s first award came as a result of information that helped the SEC stop a “multi-million dollar fraud scheme.”  According to the SEC, the whistleblower provided “documents and other significant information that allowed the investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims.”  The enforcement action resulted in a court ordering more than $1 million in sanctions, of which the SEC has collected approximately $150,000. 

At the same time it granted its first award, the SEC denied an award claim filed by a second whistleblower, noting, without elaboration, that the “information provided did not lead to or significantly contribute to the SEC’s enforcement action.” 

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