Last year alone, the U.S. Securities and Exchange Commission (SEC) issued approximately $564 million in whistleblower awards, stemming from the agency’s recovery of almost $5 billion through enforcement actions predicated on tips from whistleblowers. Those awards brought the total amount of money issued to whistleblowers over the $1 billion mark. Impressively, the SEC Whistleblower Program crossed this major threshold in only its first decade of existence.
To be eligible for an award under the Program, whistleblowers must voluntarily provide the SEC with original information, via Form TCR (Tip, Complaint, or Referral), about a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur. Original information may be derived from a whistleblower’s independent knowledge (facts not available in public sources) or independent analysis (evaluation of information, while available in public sources, that reveals information that is not generally known).
Certain information may be excluded from the definition of “original information.” This may include information 1) subject to the attorney-client privilege; 2) learned because a whistleblower held certain titles at a company, such as officer or director; or 3) learned from another person or through the entity’s internal reporting systems. There are, however, exceptions to these exclusions.
If the information submitted is deemed “original information,” or is subject to an exception from an applicable exclusion, the whistleblower will be eligible for an award where the SEC recovers more than $1 million as a result of that information. A whistleblower may be awarded anywhere between 10 and 30 percent of the amount of money the agency collects.
An award recipient is eligible to receive the presumed statutory maximum of 30 percent of all monetary sanctions collected when the amount collected in the covered action and related action(s) yields an aggregate award of $5 million or less. But this presumption may be rebutted by certain negative factors—for example, reporting delay, culpability, or interference with a company’s internal compliance processes or reporting program.
When an aggregate award exceeds $5 million, there is no presumption; the SEC will evaluate specific factors in determining the amount to be awarded to a whistleblower based upon the facts and circumstances of each case. Negative factors that may reduce the award include those listed above—delay, culpability, or interference with compliance or reporting systems. Positive factors that may lead to a higher award percentage include the significance of the information provided by the whistleblower; the level of assistance provided by the whistleblower to the SEC; the agency’s interest in deterring the type of violations reported by the whistleblower; and whether the whistleblower engaged internal compliance systems prior to or at the same time as reporting the misconduct to the SEC.
Whistleblowers submitting tips to the SEC are often employees or ex-employees of the target defendant. But other individuals who could potentially have information serving as the basis for a submission on Form TCR include competitors of the target; non-profits; financial analysts; patients; fraud victims; data analytics professionals; and industry experts. While the SEC requires whistleblowers to be individuals (not entities), it does not require them to be company insiders.
IfIf you are considering reporting information to the SEC, please fill out our online form or contact us by phone at (267) 551-5240 or via e-mail at zarbitman@feldmanshepherd.com for a free, confidential consultation.