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May 21, 2015 by |

An Overview of the SEC Whistleblower Award Program

ATTORNEY NEWSLETTER

The SEC Award program was created by the Dodd-Frank Act. This provides an incentive for people to give any information which would let the SEC take sanctions in an amount over $1 million. A whistleblower who finds himself in this case could earn 10% or 30 % of the amount recovered by the SEC or certain authorities in “related actions”. A whistleblower can be an individual, or two or more individuals acting together. There are some criteria that have to be met for the program to be applicable.

First, the information provided must be willingly given without coercion and must deal with a securities violation. Companies cannot compel their employees to do report information via some contractual clauses or provisions. According to the Rule 21F-4(b)(4) of the Act, the information must come from the individual’s own deduction or knowledge. The information also has to be new to the SEC, and cannot be derived from public available sources (except if the source was the whistleblower himself). The information can come from some communications or from personal experience. The data or his/her own expertise could help the investigation by the SEC.

The SEC’s aim with this program is to increase the efficiency of the Commission’s law enforcement operations. The whistleblowers have the choice as to whether they report their complaint internally, but it must not be under obligation from management to do so. The Commission added different provisions in the new rules to encourage whistleblowers to carry out internal compliance programs.

The final rules establish the level of success of the investigation resulting from the whistleblower’s information. The whistleblower will earn an award if the monetary sanctions exceed $1,000,000. The information provided has to lead to successful enforcement in order for the whistleblower to receive an award.

In the event of a successful action, the Securities and Exchange Commission is the only body that can determine the amount of the whistleblower’s award. It cannot exceed 30%, regardless of the number of whistleblowers. The award’s assessment depends on several factors: participation of the whistleblower in an internal compliance system, the significance of information provided by the whistleblower, the degree of assistance provided by the whistleblower, and the SEC’s programmatic interest in the particular securities violations at issue.

The Commission gave $50,000 to the first recipient in the program, which represented the maximum payout percentage allowed. In 2013, there were other cases where some whistleblower have been rewarded for their contribution in the successful SEC enforcement actions against significant financial wrongdoings and those who committed them.

Evans Law Firm, Inc. handles all types of whistleblower and qui tam (False Claims Act) lawsuits, including SEC whistleblower cases. If you have a whistleblower claim, please contact Evans Law Firm, Inc. at 415-441-8669.

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