SEC Announces First Whistleblower Award Under Dodd-Frank Program

Yesterday, only one year after the United State Securities and Exchange Commission (SEC) whistleblower program was established, the SEC announced its first award under the new program.  The unidentified whistleblower will receive nearly $50,000 as his or her reward for helping the SEC stop a multi-million dollar fraud scheme.

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act created a new program designed to incentivize whistleblowers to disclose securities fraud, and other violations of securities laws, to the SEC.  The Dodd-Frank Act also protects those whistleblowers from retaliation by their employers.

Some common examples of securities fraud are market manipulation, fraudulent accounting practices that misrepresent corporate assets or liabilities, insider trading, falsification of financial information in annual reports and other similar disclosures, fraud by brokers or investment advisors, and Ponzi schemes.  In addition, the Dodd-Frank whistleblower provisions also cover violations of the Foreign Corrupt Practices Act, the law that prohibits businesses from bribing foreign government officials.

Under the SEC’s whistleblower program, individuals can provide information relating to a violation of the securities laws directly to the SEC.  If the information provided leads to a successful judicial or administrative action by the SEC, then the SEC will award the whistleblower between 10 to 30% of the total amount of monetary sanctions collected.  The recent $50,000 award was for 30% of the recoveries—the highest possible award amount.

While the details of the underlying SEC action, including the defendants in the case and the specific allegations brought against them, have not yet been made public, the SEC stated that the court ordered more than $1 million in sanctions, $150,000 of which have already been collected.  Additionally, the SEC indicated that the court is considering issuing a final judgment against other defendants in the same matter.  Thus, the whistleblower in this case may well receive additional amounts, above and beyond the $50,000 already awarded.

Because of the enhanced anti-retaliation protections in the Dodd-Frank Act, the SEC has not revealed any information about this whistleblower’s identity or the information he or she provided that lead to the investigation.  But for the whistleblower to receive such a high percentage of the recoveries, we do know that the information provided must have been extremely valuable to the SEC’s investigation.

Interestingly, the SEC did not approve the claim of a second individual seeking an award on the matter because the information that second whistleblower provided did not contribute significantly to the ultimate enforcement action.  This highlights the important to speed in these cases.  A potential whistleblower can lose his or her right to an award if he or she delays too long in making a whistleblower claim with the SEC.

The attorneys at Tycko & Zavareei LLP are encouraged by the progress the SEC whistleblower program has made.  Without doubts, whistleblowers can provide very valuable help to the SEC in combating securities fraud and violations of the Foreign Corrupt Practices Act.  With the SEC receiving multiple tips every day, we anticipate many more similar announcements in the future.

Reporting cases of securities and commodities fraud, or violations of the FCPA, can be a complicated process.  But working with an experienced attorney can make the process faster, easier and more likely to succeed. For assistance with reporting securities fraud or FCPA violations to the SEC, contact the law firm of Tycko & Zavareei LLP for a free, confidential consultation.

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