The Law Firm of Piacentile, Stefanowski & Malherbe LLP

SEC Whistleblower Reward Program: How Whistleblowers Help Maintain the Financial Integrity of Us Securities Markets

What Is the SEC Whistleblower Program?

The Securities and Exchange Commission ("SEC" or "Commission") whistleblower program is a part of the Wall Street reform law known as the Dodd-Frank Act. The Dodd-Frank Act was enacted by Congress on July 21st of 2010. In enacting this law, Congress required the SEC to create a whistleblower office, known as the Office of the Whistleblower (OWB). It also required the SEC to publish rules establishing the filing procedures for whistleblowers to obtain financial rewards if their original information resulted in sanctions against a wrongdoer. The Commission is authorized by Congress to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The OWB’s intention with said awards is to provide a financial encouragement to whistleblowers, with the goal of minimizing harm to investors, preserving the integrity of the United States' capital markets, and swiftly holding accountable those responsible for unlawful conduct.

The range for awards is between 10% and 30% of the money collected. When we take into consideration that the minimum threshold for a reward is a $1 million sanction, that means the smallest reward starts at $100,000. As of December 2020, if the award is under $5 million, the presumption is that a whistleblower is entitled to 30% of the sanctions. This, according to the SEC, not only expedited the processing of awards claims but it also allowed for increased transparency to the claimants and their counsel. As recently as 2021, the SEC surpassed $1 billion in awards granted to whistleblowers, with two specific awards totaling $114 million. With these awards, the SEC's whistleblower program has now paid more than $1 billion in awards to 207 whistleblowers, including over $500 million in the fiscal year 2021 alone. An award of $110 million stands as the second-highest award in the program's history, following the over $114 million whistleblower award the SEC issued in October 2020. In the fiscal year 2021, the OWB and the Commission made three of the largest awards in the history of the program.

The SEC whistleblower statute requires that the SEC pay a qualified whistleblower, who provides original information to the SEC regarding a violation of any of the securities laws enforced by the Commission and/or a violation of the Foreign Corrupt Practices Act, a financial reward. The SEC whistleblower reward cannot be lower than 10% of the sanctions obtained by the SEC, or higher than 30%. More than one whistleblower can qualify for a reward, but under no circumstances can the total amount of awards paid be higher than 30% of the sanctions obtained.

Whistleblowers become eligible for an SEC whistleblower reward once the SEC issues sanctions based on the whistleblower’s information of $1 million or more. Whistleblowers are also entitled to “related action” awards, once the $1 million threshold is met. With the rule changes that came into effect in December of 2020, the definition of “covered actions” and “related actions” that create an opportunity for awards was expanded to include Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs). This was done in order to further incentivize individuals blowing the whistle on more cases that might not necessarily result in sanctions or in a settlement.

It should be noted that financial rewards are available to non-U.S. citizens who blow the whistle on potential securities frauds. Also, rewards can be granted when frauds are being committed by publicly traded companies outside the United States, particularly when there are violations to the Foreign Corrupt Practices Act.

When the 2008 recession began, it became more apparent than ever that there was a need for a solid whistleblower program that could protect investors and reduce violations to securities laws as effectively as the federal False Claims Act. The SEC whistleblower program has proved, year after year, that it is the best way to help protect the integrity of the securities market as well as offer strong protections to those that blow the whistle against retaliation while making the economic incentives strong enough to get quality information that has led to some of the biggest cases in SEC history. If you or anyone you know has information regarding securities fraud, we would like to help you, as more than just getting a financial reward, the feeling of actively helping others and improving society by reducing securities laws violations is amazing.