The Securities and Exchange Commission has awarded more than $500,000 to a whistleblower who raised concerns internally before submitting a tip to the Commission. The whistleblower’s information and assistance allowed the Commission and another agency to quickly file actions, shutting down an ongoing fraudulent scheme.
The whistleblower’s information prompted an internal investigation by the company, which then reported to an outside agency, which in turn provided the information to the SEC. Separately, the whistleblower also reported to the SEC within 120 days of reporting the violations internally to the company. Under the “safe harbor” provision of the SEC’s whistleblower rules, the SEC treats the whistleblower’s information as though it had been submitted to the SEC at the same time it was internally reported as long as the whistleblower also reports the information to the SEC within 120 days of the internal report.
“With this award, the Commission has awarded 40 individuals this fiscal year, surpassing last year’s record of 39 individual awards,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “The Commission has awarded whistleblowers nearly $200 million in the first half of FY21 alone.”
Read related article, “What Internal Auditors Need to Know About SEC Whistleblower Law.”
The SEC declined to name the individual whistleblower or the company in question.
Special Circumstances
When the SEC finalized the Dodd-Frank whistleblower provisions in 2011, it listed compliance and internal audit professionals among those who are not eligible for whistleblower award under the program, along with corporate attorneys, public accountants, and officers and directors acting on information passed on to them by another employee.
In the ruling however, the SEC laid out a series of exceptions where internal audit and compliance professionals, as well as public accountants, could participate in the whistleblower program. Those circumstances include:
- The whistleblower believes disclosure may prevent substantial injury to the financial interest or property of the entity or investors.
- The whistleblower believes that the entity is engaging in conduct that will impede an investigation.
- At least 120 days have elapsed since the whistleblower reported the information to his or her supervisor or the entity’s audit committee, chief legal officer, or chief compliance officer—or at least 120 days have elapsed since the whistleblower received the information, if the whistleblower received it under circumstances indicating that such officials are already aware of the potential wrongdoing.
The SEC has now awarded approximately $760 million to 145 individuals since issuing its first award in 2012. All 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. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10-30% of the money collected when the monetary sanctions exceed $1 million. 