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What is the SEC Whistleblower Program?
In 2010, after a series of corporate scandals had shuttered companies and devastated countless individual investors, the country debated how to break the cycle of fraud and corruption. Financial watchdogs agreed on two fundamental truths: the investor protection status quo was failing and law enforcement could not effectively and efficiently police the marketplace without the help of individuals with actionable intelligence.
In response, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, one of the most sweeping financial reforms since the Great Depression. Under the statute, the SEC developed a revolutionary bounty program, now known as the SEC whistleblower program, through which eligible whistleblowers receive significant monetary awards, employment protections, and have the ability to report anonymously.
Knowing the Eligibility Rules for the SEC Whistleblower Program is Critical
The SEC receives thousands of whistleblower tips each year and many are denied outright because the submissions fail to meet the eligibility requirements of the SEC whistleblower program. It really is mission critical to understand the eligibility provisions and their nuances.
For the most part, qualifications are pretty straightforward. Any individual or group of individuals, regardless of citizenship, can participate in the SEC whistleblower program, potentially earning significant SEC whistleblower awards. It doesn’t matter whether a whistleblower is a corporate insider or outsider.
Key Eligibility Factors:
- The information must be original, something not known to the SEC.
- The tip must be provided voluntarily, before the agency has reported the information.
- The whistleblower’s submission must lead to a successful enforcement action resulting in monetary sanctions exceeding $1 million.
SEC whistleblowers may learn about wrongdoing through their business relationships or social interactions. This information can be derived from whistleblowers’ independent knowledge or their independent analysis of publicly available information. While being an eyewitness or having evidence of a securities violation is ideal, it is not required.
Can You Report Anonymously?
The SEC Whistleblower Program allows all whistleblowers to protect their identify and remain anonymous.
To report anonymously, a whistleblower must be represented by an attorney, and needs to provide the attorney a copy of the whistleblower submission signed under the penalty of perjury.
Learn more about Anonymous Whistleblower and how to protect your identity.
Who Can Be A Whistleblower?
Pretty much anyone.
While most of our clients are in senior roles at financial firms and public companies, this is certainly not a requirement. Does a whistleblower need to be an employee of the company engaged in securities fraud? Absolutely not. As we addressed in an article on ZeroHedge, “Even Bartenders and Personal Trainers Can Receive Whistleblower Awards From The SEC.”
Gatekeepers, attorneys, accountants, internal compliance and risk executives, even culpable individuals can participate in the SEC whistleblower program. In many cases, these insiders may have high level information on wrongdoing that is causing serious harm to investors. While certain individuals, employees and outside contractors may be excluded from participation, of course, there are exceptions.
For instance, a generally ineligible whistleblower may be eligible to participate in the SEC whistleblower program if the individual reported internally and the company failed to appropriately address the problem after 120 days; if the misconduct the whistleblower reports is so significant that it would cause serious harm to the company or investors; or if the whistleblower is aware that the company is interfering with an internal or government investigation.
Helping gatekeepers and other whistleblowers can be tricky. We know this because we represented the first corporate officer to receive an SEC whistleblower award. In these and other complex areas of eligibility, such as when a whistleblower has potential culpability, it is always a good idea to consult with a whistleblower attorney.
Remember, by design, the SEC whistleblower program deputizes virtually every company employee, outside vendor, customer and citizen to serve as the Commission’s eyes and ears.
Examples of Eligibility for the SEC Whistleblower Program
- Do you live in London or work in Iceland or did you pick up some concerning information on a recent vacation in Morocco? You can reside in, or be a citizen of, any country in the world and be an SEC whistleblower. In fact, in 2014, the Commission paid out more than $30 million to a whistleblower living in a foreign country. And, every year, more than 10% of SEC tips come from foreign nationals.
- Do you know of an SEC violation that hasn’t happened yet, but the scheme will be rolled out soon? Report it. If you have a good faith belief that a violation of the securities laws is about to occur, that qualifies.
- Is the SEC already in the know? This is tricky. The SEC whistleblower program is designed to encourage prompt reporting and, as such, rewards whistleblowers who report original information. Bottom line, if possible, report early and report valuable information that supplements an ongoing investigation. We have had clients supplement existing whistleblower reports and they received monetary awards. This can happen when subsequent whistleblowers provide information that significantly contributes to the success of the enforcement action.
Eligibility Calculator
To help potential whistleblowers understand the gating principles surrounding their ability to participate in the program, we’ve created a confidential and personalized eligibility calculator. Individuals may find this is a comfortable way to learn more about the program without having to provide potentially identifying information. As this tool is illustrative and every case is unique, it’s a good idea to consult with a lawyer for a definitive understanding of eligibility.
