The Ins and Outs of the SEC Whistleblower Program

SEC Whistleblower AwardIn this blog post we will briefly outline the major components of the SEC Whistleblower Program (“Program”) including the process of submitting a claim, notices of covered actions and their link to financial recovery, and finally the necessity to retain experienced counsel in order to protect your rights.

SEC Whistleblower Program

The Dodd-Frank Act (“Act”) was signed into law in July 2010, and was in direct response to the massive financial markets meltdown of 2007-2008. The intent of the Act was to develop a means in which to mitigate the risk of unchecked financial corporate greed by incentivizing internal whistleblowers to come forward and report security law violations.  The Act’s authors recognized the importance of developing an effective program because the reality is that the government cannot police corporate fraud without the assistance of whistleblowers. This realization led to the Program’s three major components:

  1. Bounty: The bounty is the financial incentive component. Essentially any qualified individual under the Program is entitled to receive between 10% and 30% of any recovery as a reward for their information. The Commission has wide discretion relative to the percentage but not as to whether the whistleblower is entitled to a reward. So long as the whistleblower is a qualified individual and the information provided (1) is original, (2) identifies $1 million or more in fraud, and (3) leads the Commission or another government agency to take action against a covered entity, then the whistleblower shall receive a reward.
  2. Non-Retaliation: No employer may retaliate against an employee who acts lawfully in reporting information to the Commission or to other government entities relating to potential unlawful activities of the covered entity.  A violation of this provision could lead to: 1) reinstatement with the same seniority status, 2) two times the amount of the back pay with interest, and 3) compensation for attorney’s fees and litigation costs.
  3. Confidentiality: A whistleblower’s confidentiality is protected under the Program as the Commission is prohibited from disclosing information that might reasonably be expected to reveal the whistleblower’s identity. In fact, confidentiality, unlike in other governmental whistleblower programs remains intact even after the bounty are paid to the whistleblower.

How to Submit a Claim

Once a whistleblower decides to make a notification to the SEC it may do so either via the agency web portal or through the U.S. Mail. It is important to note that as part of the submission and award process, you must complete a whistleblower questionnaire, which reads in part “Are you submitting this tip, complaint or referral pursuant to the SEC’s whistleblower program?” YOU MUST CHECK YES.  This ensures your eligibility and confidentiality under the Program.

After submission, the SEC reviews the allegations and decides whether to open an investigation.  Pursuant to any investigation, the SEC may or may not, request additional information or assistance from the whistleblower or the whistleblower’s attorneys.

The Program over the past 6 years has generated thousands of tips, leading to over $120 million dollars in awards.  Just in 2016 alone, the SEC paid out $57 million, the largest annual amount in the Program’s history.

Recovery and Notices of Covered Actions

The SEC, upon completing their investigation and making the decision to recover thru an order or judgment, will post a notice of covered actions on their website at https://www.sec.gov/about/offices/owb/owb.

When the posting appears, the whistleblower has 90 days in which to submit a claim. However, before submission, the whistleblower should ensure there is a substantive link between the tip he or she provided to the SEC and the charged enforcement action. Next, the whistleblower claim is reviewed by SEC attorneys and enforcement staff in order to evaluate the level of assistance that was provided.  This assessment serves as a basis for the recommendation that is then turned over to the Claims Review Staff (“CRS”). Ultimately, the CRS makes two determinations: (1) whether a reward is justified, and (2) if so, how much the reward should be in the aforementioned 10-30% range. In some cases, the CRS can decide to award a percentage less than 10% and if so, the decision is not appealable.

The final orders of the SEC as it relates to awards are also posted on their website. If a whistleblower is denied an award there is a process that requires filing an appeal with a Unites States Court of Appeals within 30 days.

Need for Experienced Counsel

The decision to become a whistleblower is significant and has incredible risks and rewards. As a result, and because every case deals with sensitive matters that intertwine the government, corporations, and potential criminal and civil ligation, a whistleblower should retain at the onset, the services of an experienced Whistleblower Attorney.

In fact, from the beginning of the case, with the submission of an SEC Whistleblower Claim, the need for an experienced attorney is evident. The submission has very rigid and precise requirements, and if a whistleblower fails to follow those instructions, their claim will be denied. Additionally, when communicating with the federal government on these cases, the whistleblower has to be forthright and honest, but at the same time aware and apprised of the legal implications for each disclosure to the authorities. Finally, as noted in the prior section, if the CRS denies a reward, the whistleblower must submit an appeal in federal court within 30 days or their appeal by default is invalid.

In sum, it is highly recommended that a whistleblower retain qualified legal counsel whenever they believe: (1) they have information on illegal or improper activities relating to securities law, (2) they want to notify the government, and (3) and most importantly, wish to seek whistleblower protection and the potential for a reward.

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