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SEC Whistleblower Lawyer Blog

Whistleblower Award for Compliance Officer

On April 22, 2015, the Securities and Exchange Commission (SEC) announced it had granted a whistleblower with a significant award. The award related to information that a compliance officer provided to the SEC that resulted in a successful enforcement action. The amount awarded to the whistleblower by the SEC as a result of the action is in excess of $1 million.

A Rare Award

The award is the first whistleblower award to be given to a compliance officer and is only the second awarded to an employee with audit or compliance responsibilities. The award for whistleblowers can be between 10 percent and 30 percent of the amount collected, which, in this case, resulted in an award of between $1.4 million and $1.6 million. However, as with all whistleblower cases, the confidentiality of the whistleblower must be protected, meaning other details that could identify the whistleblower, including the name of the company, the company’s industry, and the nature of the conduct, are withheld from public disclosure.

The whistleblower program was created in 2010 under the Dodd-Frank Act. The program offers awards for information related to misconduct when an enforcement action of at least $1 million results. The information provided to the SEC must be original, which means that is must be:

  1. Derived from independent knowledge or analysis;
  2. Not already known by the SEC;
  3. 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; and
  4. Provided to the SEC for the first time after July 21, 2010.

Generally, an officer is ineligible for whistleblower awards when the information provided to the SEC was obtained from an employee of the company. However, an officer may be eligible to receive an award if 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 its investors. This exception to the ordinary bar to recover for officers was used in this case.

Andrew Ceresney, the director of the SEC’s Division of Enforcement, stated, “[t]his compliance officer reported misconduct after responsible management at the entity became aware of potentially impending harm to investors and failed to take steps to prevent it.”

This award further reinforces the need for companies to take immediate action to resolve improprieties when they are made aware of issues. By not taking prompt action, companies face the risk of whistleblowers providing the SEC with information of such misconduct, which can result in the assessment of significant penalties.

Protecting Investors

The whistleblower program was designed to provide protection for investors that could suffer harm as a result of corporate misconduct. Our attorneys routinely work with compliance officers from FINRA-member firms, hedge funds and investment advisors.  If you would like more information about the whistleblower program or the other protections afforded to investors, speak with an experienced securities law attorney at the Silver Law Group.

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