SEC Whistleblower Program is Paying Dividends

In 2010, Congress passed the Dodd-Frank Act, which was aimed at strengthening regulations on the investment world and offering greater protections to the public.  One of the ways that the act was supposed to do that was by providing incentives to individuals with information about misconduct about companies to come forward and provide that information.  From September 30, 2012 to September 30, 2013, over 3,200 tips were provided to the SEC, which was an increase of approximately 8% from the previous year.

If a tip provides original, solid information that aids an SEC investigation, and that investigation results in over $1 million in sanctions against someone that are actually recovered, the tipster is entitled to between 10-30% of the money recovered.  Under those parameters, during that same 2012 year, the SEC paid out almost $15 million to whistleblowers relating to four different cases which were substantially aided by the whistleblowers.  More recently, on October 1, 2013 the SEC announced another $14 million plus award to another whistleblower related to an unidentified investment scheme.  These awards clearly show that the whistleblower program can provide value to both parties, in that the SEC receives information necessary to prevent ongoing fraud of some form, and the whistleblowers receive substantial monetary recoveries.

All of these numbers have to be considered carefully, however.  Only a handful of the thousands of tips the SEC has received to date resulted in the payment of an award so far.  Many of these cases can take years to reach fruition, so the tips received by the SEC in 2012 might not culminate in finalized sanctions sufficient to base a whistleblower award on until 2014 or 2015 if not later.  Nonetheless, it seems apparent that many of the tips being received by the SEC to date have not been considered “original, substantial” information necessary to justify the whistleblower award.

There are ways that a potential whistleblower can attempt to maximize the chances of seeing results from his or her tip.  First, the SEC will generally give more weight to a corporate insider providing information about his or her company than information provided by an outsider, which will often appear to be speculation.  Secondly, a tip should provide as much detailed information as possible, with supporting evidence where available.  The more substantial a tip appears to be, the more likely it is that the SEC will devote the manpower necessary to follow up and substantiate the tip.  Finally, legal representation can be very helpful for a whistleblower.  The requirements for providing a tip and later claiming a reward have strict requirements that will prevent a whistleblower from receiving any award if they are not met.

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