SEC’s $14 Million Whistleblower Reward Likely to Lure More Tipsters

Potential tipsters have fresh incentive to come forward thanks to the U.S. Securities and Exchange Commission's latest multi-million dollar whistleblower reward. On Tuesday, October 1, the SEC announced that it had awarded an unprecedented $14 million to an anonymous whistleblower. According to the SEC, the individual's information led to an SEC enforcement action that "recovered substantial investor funds" less than six months after the SEC received the tip.¹ However, the SEC did not provide any other details about the case.

The multi-million dollar bounty was awarded by the SEC's Office of the Whistleblower, which was established in 2011 under the Dodd-Frank Act to reward "high-quality original information that results in an SEC enforcement action with sanctions exceeding $1 million." Prior to Tuesday's announcement, the SEC had only paid out whistleblower awards on two previous occasions. In August 2012, the SEC paid a whistleblower approximately $50,000. A year later, in August and September 2013, the SEC rewarded three whistleblowers with more than $25,000 for their work in a case involving a sham hedge fund. The SEC expects the total payout to those individuals to exceed $125,000 once all sanctions are collected in that case. 

The SEC’s announcement of this multi-million dollar payout is likely to breathe renewed life into the whistleblower program and encourage more tipsters to come forward, especially in light of the SEC’s clear intent on preserving the anonymity of its whistleblowers. As a result, it is likely that the number of SEC enforcement actions will also rise. As pending SEC actions wrap up and new whistleblower awards are announced, companies should ensure that they have implemented appropriate compliance and reporting mechanisms. In addition, if employee tipsters do come forward, companies should ensure that those employees are treated consistently and are not retaliated against in any manner. With appropriate planning, companies can take steps to ensure they are not caught in the web of increased enforcement activity and incentivized tipsters seeking to cash out.²

 

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¹  See U.S. Securities and Exchange Commission, “SEC Awards More than $14 Million to Whistleblower,” available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539854258#.Uk1q9YakqF0

² For more information on how to deal with common situations involving whistleblowers, see Seyfarth’s Workplace Whistleblower series, which is available at http://www.seyfarth.com/Workplace-Whistleblower.