S.E.C. makes first whistleblower award to company officer

The Securities and Exchange Commission (SEC) announced the first award under its whistleblower program to a former company officer. The officer will receive $575,000. The SEC maintains confidentiality of the whistleblower’s identity as required by law and provided few details about the underlying case, the matter still provides some further insight into the SEC’s evolving whistleblower program.

The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Securities Exchange Act of 1934 to create a new awards program for whistleblowers.  Under the whistleblower rules, the SEC is authorized to pay awards to whistleblowers that provide the SEC with “original information” about a securities law violation and that information leads to a successful SEC enforcement action resulting in monetary sanctions over $1 million. The size of the award can range from 10 to 30 percent of the amount recovered in the enforcement action, and the SEC has considerable authority to determine the amount of the whistleblower bounty within that range. The rules also broadly prohibit retaliation against whistleblowers, and require the SEC  to maintain the anonymity of the whistleblower’s identity.

Under the SEC rules, a whistleblower’s original information must be derived from the whistleblower’s own independent knowledge or independent analysis.

This award, the SEC’s fifteenth overall, once again underscores that the SEC is serious about its whistleblower bounty program. Many critics of the program continue to express concern that the bounty program incents employees to go directly to the SEC and bypass the company’s own internal reporting systems, which hampers a company’s ability to identify and correct potential wrongdoing as early as possible. Similarly, the lack of detail surrounding each announcement of a whistleblower award gives public companies and other regulated entities precious little information to use to improve their own compliance programs.

Jeffrey Newman represents whistleblowers