The SEC has issued guidance relating to whistleblower awards that provides some clarification with respect to who may qualify for a whistleblower award under the SEC's whistleblower program. Compliance officials, auditors, and company lawyers who report information internally about corporate wrongdoing and then wait 120 days to report the information to the SEC will qualify for a whistleblower award if their disclosure is determined by the SEC staff to have been "voluntary."
The program provides financial incentives for individuals who provide original information that leads to successful enforcement action by the SEC. To be eligible for a reward, the whistleblower must submit the information that is not already known to the SEC. Rewards range from 10% to 30% of the monetary sanctions collected by the SEC.
Under one of the below circumstances, a compliance official may report their information to the SEC's Office of the Whistleblower and receive a reward (taken from SEC Regulation 21F):
"(A) You have a reasonable basis to believe that disclosure of the information to
the Commission is necessary to prevent the relevant entity from engaging in conduct
that is likely to cause substantial injury to the financial interest or property of the entity
or investors;
(B) You have a reasonable basis to believe that the relevant entity is engaging in
conduct that will impede an investigation of the misconduct; or
(C) At least 120 days have elapsed since you provided the information to the
relevant entity's audit committee, chief legal officer, chief compliance officer (or their
equivalents), or your supervisor, or since you received the information, if you received it
under circumstances indicating that the entity's audit committee, chief legal officer,
chief compliance officer (or their equivalents), or your supervisor was already aware of
the information."
The main reasoning behind this 120-day rule, according to the SEC is that “As a general matter, these individuals occupy sensitive roles that can enable them to identify and stop possible violations of the securities law, and their diligence in doing so can be an important factor that companies or other entities achieve compliance. Thus, we believe it is a more efficient and cost-effective use of the Investor Protection Fund to provide further incentive to these individuals to fulfill those responsibilities rather than allowing them to use knowledge of possible wrongdoing to obtain an award by reporting to the Commission. That said, we have recognized certain exceptions to the exclusions that, in our view, reflect situations where the benefit of paying an award—in terms of reducing the harm to the entity and investors, and in preserving our enforcement capacity— justifies the cost associated with a claim on the Investor Protection Fund.”
It is very important that we highlight the fact that this 120-day exception does not apply to external auditors who obtained any of the information during their auditing work. This means that external auditors can report any improper or illegal activity immediately after informing a superior in their accounting firm and they fail to promptly report it to the SEC. Still, this is just an exception and more often than not you will need to wait the full 120-day period. Because of this, it is of upmost importance that you always keep a detailed record of any type of disclosure made to your supervisor or the person in the company or organization in charge of remedying any violations. It doesn't matter how small of a disclosure you make; you must do your best to record it, preferably on a dated letter or email as the date of the disclosure and complying with the 120-day period might be the difference between millions of dollars in a reward or absolutely no reward.