The Securities and Exchange Commission (SEC) is the federal agency responsible for regulating the securities industry and for enforcing federal securities laws. The SEC protects the public against fraudulent and manipulative practices in the securities markets. Congress created the SEC Whistleblower Program as a way to offer incentives to those people who have knowledge about securities fraud. The program encourages individuals to report fraudulent activity and present evidence to the SEC. Under the Dodd-Frank Act, Congress authorized the SEC Whistleblower Program to provide monetary awards to eligible individuals who come forward with useful and original information that leads to a successful enforcement action resulting in at least one million dollars ($1,000,000) in sanctions. The whistleblower is entitled to an award of between 10 and 30 percent of total money collected. In addition, the SEC Whistleblower Program prohibits any retaliation by employers against employees who provide securities violations information to the SEC. The SEC has been receiving an average of eight tips each day from whistleblowers residing in both the United States and abroad.
Which Individuals Can Receive a Monetary Reward?
Any individual who files a complaint with the SEC containing original information about a violation of federal securities laws that occurred in the past, is presently occurring or is about to occur is eligible for a whistleblower award. The amount of the award (from 10-30%) is determined by the amount of money recovered and the quality of the information given to the SEC. Whistleblowers need not be a company insider to qualify for a reward from the program. In addition, potential SEC whistleblowers do not have to be citizens of the United States. As shown in the graph below, the SEC is receiving tips from a number of different foreign countries, including China, the United Kingdom and Australia. To receive a monetary reward, however, any action taken by the SEC based on the provided whistleblower information must result in monetary sanctions that exceed $1 million. It is possible for more than one person in a covered action to be eligible for a whistleblower award, but companies and organizations do not qualify for monetary awards.
What is Original Information?
In order to recover an award, whistleblowers must provide “original information,” to the SEC. That is, the whistleblower must obtain his or her information from data that is not readily available to the public. For example, information from newspapers, court cases, government reports or audits is not “original information.” Additionally, data gathered from an independent study of public information that reveals information not already known to the SEC is not considered “original information.”
SEC Action against Fraud
Whistleblower Office Since 2011
One year after setting up the office that handles these matters, the SEC issued its first award to a whistleblower. That person did not want his/her identity made public, however the whistleblower received $50,000, or 30 percent of the amount the government has recovered to date from the fraud. If the government collects additional money from the fraud, the whistleblower will continue to receive compensation.
When the whistleblower office was set up in 2011, there was a concern that the SEC would not be able to handle the number of complaints expected. The SEC, however, has been able to continue its on-going responsibilities while also handling whistleblower complaints.