SEC Whistleblower Cases

Whistleblowers regularly wait 5-7 years, from filing their initial tip to receiving their whistleblower award. A complex SEC enforcement action often requires years to investigate and litigate. Once the Commission obtains a final judgment and collects monetary sanctions exceeding $1 million, the Office of the Whistleblower posts a Notice of Covered Action. From that point, whistleblowers must file an application for award, within 90 days. Then, the Claims Review Staff reviews all applications and issues a Preliminary Determination, which can take 18-24 months. Assuming there is no request for reconsideration of the Preliminary Determination and the Commission issues its final order, the Treasury Department will typically pay the whistleblower award within 6-9 months.

For more information about the SEC investigative process, check out our SEC Insider's Guide.

SEC Insider Tip: Sophisticated whistleblowers expect delays and instead focus on things that they can control, like providing extraordinary assistance to the SEC Staff.

Generally, no. The SEC protects whistleblowers' identities aggressively. If a lawyer represents you, you can submit your tip anonymously, which means the agency will not know your name. So, the public and the company will not see your name in any press releases, litigation filings, or settlement documents. Your identity only becomes known to the Commission when you apply for the whistleblower award. However, there is an exception to this rule: cases where the SEC settles with some defendants and continues to litigate with others.

Under these circumstances, the whistleblower would be required to disclose their identity to the Commission in an application for an award associated with the settled enforcement action. As a result, the Commission could be required to disclose the whistleblower's identity to the parties in litigation. That being said, this situation is extremely rare. More than 95% of SEC enforcement actions are settled without litigation. Only a small fraction of those litigated cases involve a partial settlement. And, even in those cases, the Commission has other ways to protect whistleblowers' identities, including requesting a court protective order.

For more information about litigated SEC enforcement actions, check out our SEC Insider's Guide.

SEC Insider Tip: Sophisticated whistleblowers don't worry about their identity being disclosed by the Commission because the odds of it happening are extremely low, additional confidentiality safeguards are available, and the problem only arises many years after the initial filing of their tip.

Yes. Whistleblowers are permitted to provide evidence of possible securities violations to the Commission. However, since this can be tricky legal terrain, prospective whistleblowers should consult with an attorney to understand what non-privileged evidence can be taken out of the company, the best practices for obtaining that evidence, and how the evidence needs to be handled. SEC Whistleblower Advocates regularly advises clients on exactly what materials would support the investigation without violating legal privilege rules or other relevant agreements. In practice, many of our strongest whistleblower cases include large collections of company documents and covert recordings.

SEC Insider Tip: Before removing documents from the workplace, sophisticated whistleblowers talk to a whistleblower lawyer first they understand that missteps could undermine their future whistleblower case or result in unnecessary litigation with their employer.

Yes. The IRS treats whistleblower awards, less attorney fees and other deductible expenses, as ordinary income. Before authorizing the Treasury Department to pay a whistleblower award, the Commission requires whistleblowers to complete an IRS Form W-9. And, at the end of the year, the whistleblower will receive an IRS Form 1099. In advance of payment, SEC Whistleblower Advocates helps our clients to prepare to receive life-changing monetary awards, including connecting them with whistleblower tax experts.

Agreements that restrict or discourage SEC whistleblowers from reporting possible securities violations are unenforceable and may also constitute violations of the securities laws. Specifically, Rule 17 prohibits companies from impeding an individual from communicating directly with the SEC staff. You cannot waive your rights to a whistleblower award in a confidentiality, non-disparagement, or severance agreement. The SEC has brought several high-profile enforcement actions against companies that have used these illegal secrecy agreements, including the landmark $415 million case against Merrill Lynch originated by a group of our whistleblower clients.

For more information on this topic, check out our article in the ABA Journal of Labor & Employment Law, "De Facto Gag Clauses: The Legality of Employment Agreements That Undermine Dodd-Frank's Whistleblower Provisions."

If two whistleblowers file a tip regarding the same possible securities law violation, only the first whistleblower will be eligible to receive an award, unless the second whistleblower is found to have significantly contributed to the success of the enforcement action. In practice, even when the second whistleblower meets this higher standard, the Commission often grants them a lower award percentage than the first whistleblower. So, it really pays for whistleblowers to be first.

Yes, if the Commission secures monetary sanctions in excess of $1 million and the related case is brought by a prosecutor based upon the same original information the whistleblower reported to the SEC. It is not uncommon for a securities law violation to be prosecuted by the Commission and another federal law enforcement or regulatory organization, such as the U.S. Attorney for the Southern District of New York. Accordingly, if the Securities and Exchange Commission achieves a successful action based on your assistance, and the criminal authorities collect civil penalties and other forms of monetary sanctions, such funds may count toward your whistleblower award. The authority for this is the whistleblower protection rules, and award provisions, which authorize the Commission to pay out on related actions when the SEC obtained a judgment based on the same facts.

The whistleblower process involves rigorous review to protect whistleblower rights, and the ultimate decision is voted on by the members of the Securities and Exchange Commission. Initially, the SEC Office of the Whistleblower, formerly led by Chief Creola Kelly, and now led by Jonathan Carr, assesses whistleblower claims to verify that the tip provided original information that led to a successful enforcement action. Next, the whistleblower office staff confirms that you complied with all other program regulations and did not violate any specific program restrictions. Then, with input from the investigative team, the Claims Review Committee will review your application and make a Preliminary Determination about your eligibility and award percentage, if applicable. Finally, while the SEC's Enforcement Division handles the investigation and awards processing, the Commission itself votes on the application and issues a final order under the SEC's oversight mandate.