Whistleblower Receives SEC Award of $3.8 Million


The Securities and Exchange Commission (SEC) has awarded $3.8 million to a whistleblower who assisted in disrupting a fraudulent scheme. 

July 15 2020 | AtoZ Markets – Today the SEC awarded $3.8 million to a whistleblower that provided new information during the course of an ongoing investigation into a fraudulent scheme.  According to the order announcing the award, the information that the whistleblower provided “helped the Commission halt an ongoing fraud and return millions of dollars to harmed investors.”

How to qualify for SEC whistleblower award

This award underscores that while an SEC whistleblower must provide reliable information to qualify for an award, a whistleblower assisting with an existing investigation can be eligible for an award.  Under Rule 21F-4(c)(2), a whistleblower who voluntarily submits original information may be eligible for an award. This will be possible if the information significantly contributes to the success of an enforcement action. A whistleblower’s information may “significantly contribute” to an enforcement action in several ways, including if the information:

  • allows the SEC to bring the enforcement action in significantly less time or with significantly less resources;
  • expands the scope of the current investigation, leading to additional successful claims; or
  • allows the SEC to bring claims against additional parties.

Since 2012, the SEC has issued more than $505 million in awards to whistleblowers. The largest SEC whistleblower awards to date are $50 million, $50 million, and $39 million.

How SEC determine an award percentage

Under the SEC whistleblower program, the agency will issue awards to whistleblowers who provide original information that leads to enforcement actions with total monetary sanctions (penalties, disgorgement, and interest) in excess of $1 million. In exchange for the valuable information, a whistleblower may receive an award of between 10% and 30%. This is the percentage of the total monetary sanctions collected.

In determining an award percentage, the SEC considers the particular facts and circumstances of each case. For example, positive factors that may increase an award percentage include the significance of the information, the level of assistance provided by the whistleblower. It also includes the whistleblower’s attorney, and the law enforcement interests at stake. On the other hand, there are also negative factors that may decrease the award percentage. These include unreasonable delay in reporting the violation to the SEC and the culpability or involvement of the whistleblower in the violation.

What is the purpose of the SEC whistleblower program?

This month marks the 10th anniversary of the enactment of the Dodd-Frank Act. This act established whistleblower reward programs at the SEC and CFTC.  The purpose of these whistleblower reward programs is to encourage whistleblowers to provide the SEC and CFTC with information that leads to successful enforcement actions.  In particular, Congress sought to “motivate those with inside knowledge to come forward and assist the Government to identify and prosecute persons who have violated securities laws and recover money for victims of financial fraud.” S. Rep. No. 111-176, at 110 (2010).

While these programs face several challenges, including insufficient resources, they have been successful in protecting investors and rooting out fraud.  Since the beginning of the SEC whistleblower program, the SEC has ordered more than $2.5 billion in financial remedies based on whistleblower information, including more than $1.4 billion in disgorgement and prejudgment interest, of which almost $750 million has been returned or is scheduled to be returned to harmed investors.

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