by Daniel Farber Huang
October 1, 2020
The Securities and Exchange Commission announced it recently paid out whistleblower awards to six individuals totalling almost $35 million, capping its largest payout year since the program started eight years ago. The SEC made a record 39 individual whistleblower award payments totalling approximately $175 million during the current fiscal year, which ended Sept. 30.
The most recent awards to six individuals spanned four separate situations:
Protecting retail investors — Two individuals who helped the SEC open an investigation involving retail investors were awarded almost $30 million. The first person, who initially alerted SEC staff of potential wrongdoing, received approximately $22 million and the other person received approximately $7 million for providing other useful information.
Helping build better mousetraps — A whistleblower alerted the SEC of hard-to-detect overseas violations and provided critical information and supporting evidence that conserved SEC time and resources and was awarded nearly $2.9 million for the process improvement.
Sharing insider insight — A former company insider who provided extensive assistance to the SEC on an investigation received $1.7 million.
Taking it up the chain of command — Two joint whistleblowers had originally reported a discrepancy (the exact nature was undisclosed in the SEC announcement) to their company’s management and instead of being commended they “suffered personal hardships as a result of the reporting” according to a Sept. 30, 2020 press release. So they reported a tip to the SEC and provided assistance to the investigation, and were awarded nearly $400,000 in total.
Jane Norberg, Chief of the SEC’s Office of the Whistleblower, said in the press release, "The awards issued in the last month demonstrate the variety and breadth of tips received from whistleblowers."
Stephanie Avakian, Director of the SEC’s Division of Enforcement, said in the same release, "We've made significant strides to further streamline and accelerate the evaluation of claims under the rules, substantially increasing the rate at which whistleblower claims are evaluated and awards are issued…. We remain committed to rewarding the valuable contributions of whistleblowers in a timely and efficient manner."
The first SEC whistleblower award was paid eight years ago in 2012. Since then, almost $562 million has been paid to 106 individuals. Money for payments comes from an investor protection fund established by Congress that is funded by penalties paid to the SEC by securities law violators. Money taken or withheld from harmed investors are not used for whistleblower payments.
The SEC protects the confidentiality of whistleblowers and does not disclose their identity, as set forth in the Dodd-Frank Act. According to Investopedia.com, the Dodd-Frank Wall Street Reform and Consumer Protection Act was a massive piece of financial reform legislation (roughly 2,300 pages) that was passed in 2010, during the Obama administration, in response to the 2008 financial crisis.
According to the SEC’s whistleblower webpage, whistleblowers can help the Commission identify fraud and other violations much earlier than might otherwise be possible. The Commission is authorized by Congress to pay awards for “high-quality, original information” that result in fines of at least $1 million. Awards may range between 10 percent to 30 percent of the penalties collected.
Whistleblowers are encouraged on the SEC website to submit a tip.
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