The Securities and Exchange Commission (SEC) operates a Whistleblower Program to receive tips about violations of the federal securities laws.
The SEC’s program, which was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act., has strict dollar thresholds: whistleblower rewards are only paid for tips that result in an enforcement leading to collection of penalties of $1 million or more.
Violations The SEC Wants To Hear About
The following are examples (among others) of the kinds of practices the SEC is interested in hearing about:
- Market manipulation schemes
- Insider trading
- Front running
- Price distortion
- Money laundering
- Fictitious sales
- Reporting fraud
- Offering fraud
- Money laundering violations, and
- Violations of the Foreign Corrupt Practices Act (FCPA)
The SEC Whistleblower Process
If the SEC acts on information provided by a whistleblower, and as a result levies and collects at least $1 million in money sanctions, the whistleblower will receive between 10 and 30 percent of the money collected. However, unlike the False Claims Act, the Dodd-Frank whistleblower law does not include an “agency forcing” mechanism: if the SEC declines to pursue the matter, that’s the end of the road. Unlike whistleblowers under the False Claims Act, SEC whistleblowers cannot file suit on their own. On the other hand, unlike claims brought under the False Claims Act, whistleblower claims submitted to the SEC (often called “Dodd Frank” claims) do not require evidence of a fraud against the government or losses to public funds. The SEC program covers frauds against private investors.
An SEC whistleblower can be anyone who voluntarily provides the SEC with “original” information about a violation of federal securities laws that has occurred, is ongoing, or is about to occur, and is the first person to provide that information—subject to two principal exceptions. First, “original” information generally means independent information not already known to the SEC or publicly available (i.e., not from an already existing or concluded court case or administrative hearing, from a government report, hearing, audit, or investigation, or picked up from the news media), Second, companies or organizations are not eligible to become SEC whistleblowers; and neither are officers or employees of certain government or self-regulatory organizations or those who were officers or employees at the time the information was learned; persons convicted of a criminal violation related to the action for which they supplied the information; or whistleblowers who gained the information through performance of an audit required under the securities laws.
You do not need to be a company insider to be an SEC whistleblower. SEC whistleblowers can be insiders but they are also often investors, market observers, gatekeepers (auditors or accountants), data analysts, and even academics.
The SEC allows whistleblowers to submit information anonymously. However, to collect an award you must be represented by, and provide contact information for, an attorney in connection with your submission, and you must also complete a “tip, complaint, or referral form” (Form TCR) signed under penalty of perjury.
SEC Whistleblower Awards
The SEC rewards whistleblowers if the information they provide leads to a successful enforcement action that results in the SEC’s levying and collecting monetary sanctions of at least $1 million. The whistleblower’s award will be between 10 and 30 percent of the monetary sanctions collected. In determining the amount of the award, the SEC considers:
- The quality, quantity, and significance of the information provided in exposing the fraud;
- The amount and quality of assistance provided to the SEC during the investigation and any subsequent proceedings by the whistleblower and the whistleblower’s attorney
- The SEC’s “programmatic interest” in deterring future violations
- Whether the whistleblower participated in a company’s internal compliance system by reporting possible securities violations before, or at the same time, as violations were reported to the SEC
- If the whistleblower was a participant in, or culpable for the securities law violations reported
- If the whistleblower unreasonably delayed reporting the violations to the SEC
- If the whistleblower interfered with a company’s internal compliance and reporting system
If you have knowledge and solid evidence of violations of the federal securities laws, please contact our whistleblower lawyers. Consultations are free and confidential.