Workplace Issues

SEC to Award $30M to Whistleblower

The award will be the largest made by the SEC, although the whistleblower claimed that it was below the average percentage amount others got.
David KatzSeptember 22, 2014

Hot on the heels of announcing a $300,000 whistleblower award given for the first time to an internal auditor on Sept. 1, the Securities and Exchange Commission revealed today that it’s planning to pay out 100 times that amount  — the most the agency has ever dished out to an informant.

Fox-40-whistle SEC whistleblowerThe award, which should yield a total of from $30 million to $35 million,  will be the fourth one given to a whistleblower living in a foreign country. “This whistleblower came to us with information about an ongoing fraud that would have been very difficult to detect,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.

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That information must have been significant, considering the size of the award and the SEC’s finding that the informant was tardy in coming forward. “In reaching the award determination,” the commission said in  its order, “we have considered claimant’s delay in reporting the violations, which under the circumstances we find unreasonable.”

The claimant delayed coming to the SEC “after first learning of the violations, during
which time investors continued to suffer significant monetary injury that otherwise might have been avoided,” the commission stated.

The commission disagreed with the whistleblower’s contention that the delay was reasonable under the circumstances because the claimant was “uncertain whether the Commission would in fact take action,” according to the order. “There is always some measure of uncertainty about how a law- enforcement agency may respond to a tip, but in our view this does not excuse a lengthy reporting delay while investors continue to suffer losses.”

But since some of the informant’s period of delay in reporting the illegal scheme  happened before the whistleblower award program was established by enactment of Dodd-Frank  in 2010, the SEC decided “not to apply the unreasonable delay consideration as severely here as we otherwise might have done had the delay occurred entirely after the program’s creation.”

The previous record for an SEC whistleblower award was $14 million, which was announced in October 2013.  The SEC awarded funds to its first whistleblower under the program following its inception in fiscal year 2012.  The program awarded four more whistleblowers in FY 2013, and has awarded nine whistleblowers in FY 2014.

Large as today’s award was compared to other awards, the whistleblower asserted that the award was “below the average percentage amount awarded to other successful claimants to date,” the SEC stated in its order. The SEC, however, said it “[found] this assertion irrelevant.”

The whistleblower program “rewards high-quality, original information that results in an SEC enforcement action with sanctions exceeding $1 million,” according to an agency press release.

The awards, which come from an investor protection fund,  can range from 10% to 30% of the money collected in a case. The fund is financed  via fines paid by securities law violators to the SEC. By law, the agency protects the confidentiality of whistleblowers and doesn’t disclose information that might reveal a whistleblower’s identity.

Photo by Lkmorlan

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