On March 2, 2015, the Securities and Exchange Commission (SEC) announced that it had awarded between $475,000 and $575,000 to a former corporate officer for reporting securities fraud. Pursuant to law, the SEC keeps confidential the identity of the whistleblower, as well as information that may reveal his or her identity, so specific facts of the case are not publicly known. However, this award was significant because the SEC utilized an exception to the general rule that officers are ineligible for whistleblower awards. As a result, all companies should take note and ensure that any reported improper conduct is quickly addressed.
The whistleblower program was adopted in 2010 (becoming law in 2011) under the Dodd-Frank Act and offers rewards to individuals for reporting misconduct if an enforcement action with at least $1 million in sanctions results. Awards range from between 10% and 30% of the money collected through the enforcement action. Information must be considered original, which is defined as:
- Derived from independent knowledge or analysis;
- Not already known to the SEC;
- Not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media; and
- Provided to the SEC for the first time after July 21, 2010.
Generally, officers, directors, trustees, and partners are ineligible for awards when reporting information of suspected fraud when obtained from an employee. However, these individuals may be eligible for an award if any of the following are true:
- The individual has a reasonable basis to believe that disclosure of the information to the SEC is necessary to prevent the entity from engaging in conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors;
- The individual has a reasonable basis to believe that the entity is engaging in conduct that will impede an investigation of the misconduct, such as by destroying documents or improperly influencing witnesses; or
- At least 120 days have passed since the whistleblower provided the information to the audit committee, chief legal officer, or chief compliance officer (or their equivalents), or to a supervisor.
The SEC announcement indicated that this is the first award given under the third exception listed above. This is important because it serves as a warning to companies that even individuals at or very near the top of the organization have incentive to report misconduct. Believing that individuals in positions of power or trust will not report misconduct to the government can become problematic for companies. As soon as improprieties are discovered, the company should take action to resolve those issues.
If you would like more information about the whistleblower program, contact the experienced attorneys at the Silver Law Group. We have extensive experience in helping protect individuals who provide information under the whistleblower program.