SEC reminds whistleblowers: we feel the need…the need for speed

Securities Litigation Alert

As we noted in our last client alert regarding the SEC’s whistleblower awards, two themes the SEC has emphasized in connection with its recent awards are: 

  • The SEC’s Office of the Whistleblower will – if the facts warrant – pay big awards and
  • The faster you provide the SEC with information, the higher the award you will receive. 

The SEC’s most recent whistleblower award, announced on March 8, 2016, reiterated both of these themes. First, this most recent award involved another eye-popping large amount: nearly $2 million in total, paid to three whistleblowers. One of these whistleblowers will receive approximately $1.8 million. The other two whistleblowers are expected to receive around $65,000 each.

Second, this most recent award underlines the premium the SEC places on speed. While the SEC’s description of its reasoning for the differences in the various awards was somewhat vague, it appears that the whistleblower who won $1.8 million received a greater reward predominantly because he or she was first:  the whistleblower “voluntarily provided original information that prompted the SEC to open its investigation” while the other two whistleblowers provided information to the SEC “after the investigation started.” (The SEC further observed: (1) the first whistleblower “continued to provide valuable information throughout the investigation”; and (2) the “joint contribution of” the other whistleblowers was “substantially less important than that of” the first whistleblower).

Generally, if the SEC determines to grant a whistleblower award, the size of the award ranges from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. Thus, one might assume that the greatest disparity you would see between a “big” whistleblower award and a “small” whistleblower award stemming from the same case would be a 3x multiple (i.e., the small award would receive no worse than 10 percent, the big award no more than 30 percent). 

How, then, did one whistleblower receive an award almost 28 times greater than that given to the other two awardees? The SEC’s rules for its whistleblower program provide that where the SEC makes awards to more than one whistleblower in connection with the same case, the SEC “will determine an individual percentage award for each whistleblower, but in no event will the total amount awarded to all whistleblowers” fall outside the 10 percent - 30 percent band. 

Here, in determining how to allocate individual percentage awards for these three whistleblowers, the SEC gave the lion’s share of the award to the whistleblower who blew the whistle first. 

Finally, in connection with this most recent award, the SEC’s Office of the Whistleblower indicated that the number of tips it receives is continuing to grow. Sean X. McKessy, Chief of the SEC’s Office of the Whistleblower, noted in announcing the award that the Office is “seeing a significant uptick in whistleblower tips over prior years.” In its most recent annual report, the Office of the Whistleblower said that the number of whistleblower tips received by the SEC has increased each year the program has been in operation (from 3,001 in FY 2012, the first full year of the program, to 3,923 in FY 2015). If the Office is seeing “a significant uptick,” we should expect well more than 4,000 tips this year. 

Find out more about these whistleblower awards and their potential meaning for your business by contacting the author.