Risk & Compliance

SEC Awards Largest Whistleblower Payment Ever

In what could be the beginning of a wave of payouts, the commission is awarding $14 million to a whistleblower who helped it recover investor funds.
Marielle SegarraOctober 1, 2013

The Securities and Exchange Commission has awarded its largest whistleblower payout ever. The agency is paying more than $14 million to a whistleblower whose information helped the agency recover “substantial investor funds,” the SEC said in a statement released today.

Courtesy of Wikimedia user Zephyris. CC-BY SA

Courtesy of Wikimedia user Zephyris. CC-BY SA Courtesy of Wikimedia user Zephyris. CC-BY SA

The SEC’s whistleblower program, authorized by the Dodd-Frank Act, launched in 2011 and rewards people who report information that leads the commission to more than $1 million in sanctions. The agency awards whistleblowers 10 percent to 30 percent of the money it collects in a particular case. It paid out about $50,000 in its first award in August 2012. It will likely also pay more than $125,000 in total to three whistleblowers who helped halt a sham hedge fund this year.

Jordan Thomas, chair of the whistleblower representation practice at Labaton Sucharow and former SEC enforcement official, says this award is “the beginning of what is likely to be a wave of SEC whistleblower payments,” because it has been two years since the rules went into effect, and agency investigations typically take two to four years to complete. “I can tell you as someone who worked at the SEC for a year after Dodd-Frank passed and who has represented corporate whistleblowers for almost two-and-a-half years: many of the SEC’s most significant cases in the coming years are likely to be the result of whistleblowers,” Thomas says.

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The payout sends a message that the commission is committed to the program, he adds. “The SEC has committed to making significant monetary rewards, which will make higher-net-worth individuals, particularly on Wall Street, more willing to come forward,” Thomas says. With this award and future payouts in mind, companies should make sure they have “robust and credible internal reporting systems, because failure to do so will lead people to report externally, as they did in this case,” Thomas adds.

Though Congress allowed the government to shut down Tuesday morning, the SEC has enough money in its coffers to operate at full staff for a few weeks, a spokesperson said Monday afternoon.

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