In light of the 2008 financial crisis – which was propelled primarily by corporate misconduct and serious Wall Street delinquency – the 2010 Dodd-Frank Act was created in order to not only police investor transgressions but to incentivize those with knowledge of possible securities fraud to come forward and report their information to confidential federal authorities.
While the SEC’s whistleblower program does not get as much press and exposure as the False Claims Act, its rewards are often staggering. In March 2018, the SEC announced its largest ever award of $50 million to be split between two whistleblowers for having come forward with information about corporate and financial fraud.
The SEC’s Whistleblower Program
The SEC’s whistleblower program allows individuals with knowledge of fraud related to investors, securities, and stock exchanges to report information to the SEC. For example, whistleblowers can report information about Ponzi schemes, Pyramid schemes, insider trading, false or misleading statements on SEC filings, abusive short-selling, bribery of foreign officials, and other fraudulent conduct involving securities. The SEC will then investigate the information submitted by the whistleblower, and if that investigation results in a recovery for the SEC of more than $1 million, the whistleblower will receive between 10-30% of the recovered amount.
Large Recoveries for the SEC and Whistleblowers
The $50 million payday is $11 million more than the next-highest reward offered by the SEC, and it serves as a reminder that coming forward with information of fraud not only benefits unknowing investors, but can be exceptionally lucrative for whistleblowers as well.
This remains the largest SEC whistleblower award to date, although there have been several other significant awards. Overall, as of March 2019, the SEC has awarded more than $376 million to 61 whistleblowers, for an average award size $6.16 million. In addition, SEC enforcement actions from whistleblower tips have resulted in more than $1 billion in recoveries for the SEC.
Important Protections for Whistleblowers
In addition to the substantial financial recovery, the SEC’s whistleblower program also provides whistleblowers with enhanced protections. For example, in keeping with its dedication to confidentiality and whistleblower protection, the SEC released very few details about the underlying issues giving rise to the $50 million reward – including the names of the whistleblowers or the details of the fraud.
Whistleblowers may submit information to the SEC anonymously, and the SEC does whatever it can to protect a whistleblower’s identity. This is an important consideration, as whistleblowers often face retaliation if their identities become known, particularly if a whistleblower is reporting fraud against their employer. In addition, federal law generally prohibits employers from retaliating against employees for reporting conduct that an employee reasonably believes violates the law.
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