First Award Given to Company Outsider

In a first for the SEC whistleblower program, on January 15, 2016, the Commission announced a $700,000 award to a company outsider who provided analysis and support to the Commission, ultimately leading to a successful enforcement action. The landmark award underscores the broad reach of the program, which extends well beyond current and former employees to any individual who has knowledge of a violation of the federal securities laws.

Our own Jordan Thomas was quoted at length in a related article in the Wall Street Journal: “While the SEC has used information from people outside of a company previously – he cited the help the agency received from former securities executive and financial fraud investigator Harry Markopolos to pursue Bernard Madoff – the agency wasn’t issuing awards at that time… this latest award marks a “milestone” for the SEC whistleblower award program and is likely to lead to more outsiders coming forward in the future.”

To be sure, this award realizes the greatest hope of the Commission in crafting the program; to empower and deputize everyday citizens to serve as the SEC’s eyes and ears in order to detect and deter corporate wrongdoing.

While Tough, Outsiders Can Still Be Whistleblowers

As a long-time securities prosecutor as well as a principal architect of the whistleblower initiative during his tenure at the SEC, Jordan explained how, in practice, it can be difficult for company outsiders to secure the agency’s attention. “If an insider says, ‘Joe is committing a crime,’ they are much more willing to open an investigation” while an analyst working from the outside with public information would have to tell a “compelling story” to get the agency to take action.”

Established under the Dodd-Frank Act, the SEC’s program provides substantial financial incentives, employment safeguards and identity protection to eligible whistleblowers who voluntarily provide original information about violations of the federal securities laws. The reported violations must lead to a successful enforcement action in which the monetary sanctions exceed $1 million.

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