The U.S. Securities and Exchange Commission opened a website yesterday with tips on its new whistleblower bounty program which officially began this week. The Dodd-Frank incentive program now rewards tipsters with upto 30 percent of the penalties collected from financial wrongdoing. The program focuses on securities and financial violations by companies, which could mean improper reporting and accounting, off shore accounts used to hold moneys illegally, lying to stockholders,various forms of financial fraud and more. The whistleblower rewards are made when there is more than One Million Dollars in sanctions ordered by the SEC. Here are some basics on the program:
What is the SEC Whistleblower Program?
The Whistleblower Program was created by Congress to provide monetary incentives for individuals to come forward and report possible violations of the federal securities laws to the SEC. Under the program eligible whistleblowers (defined below) are entitled to an award of between 10% and 30% of the monetary sanctions collected in actions brought by the SEC and related actions brought by other regulatory and law enforcement authorities.
The Program also prohibits retaliation by employers against employees who provide us with information about possible securities violations.
Who is an eligible whistleblower?
An “eligible whistleblower” is a person who voluntarily provides us with original information about a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur. The information provided must lead to a successful SEC action resulting in an order of monetary sanctions exceeding $1 million. One or more people are allowed to act as a whistleblower, but companies or organizations cannot qualify as whistleblowers. You are not required to be an employee of the company to submit information about that company. See Rule 21F-2.
What does it mean to “voluntarily” provide information?
Your information is provided “voluntarily” if you provide it to us or another regulatory or law enforcement authority before (i) we request it from you or your lawyer or (ii) Congress, another regulatory or enforcement agency or self-regulatory organization (such as FINRA) asks you to provide the information in connection with an investigation or certain examinations or inspections. See Rule 21F-4(a).
What is “original information?”
“Original information” is information derived from your independent knowledge (facts known to you that are not derived from publicly available sources) or independent analysis (evaluation of information that may be publicly available but which reveals information that is not generally known) that is not already known by us. So if we received your information previously from another person, that information will not be original information unless you were the original source of the information that the other person submitted. See Rule 21F-4(b)(1).
How might my information “lead to” a successful SEC action?
Your information satisfies the “led to” criterion if your information causes us to open a new investigation, re-open a previously closed investigation or pursue a new line of inquiry in connection with an ongoing investigation, and we bring a successful enforcement action based at least in part on the information you provided. Additionally, you may still be eligible if your information relates to an ongoing examination or investigation, if the information you provide significantly contributes to the success of our resulting enforcement action. You may also be eligible if you report your information internally first to your company, and the company later reports your information to us, or reports the results of an internal investigation that was prompted by your information, as long as you also report directly to us within 120 days. See Rule 21F-4(c).
I work at a company with an internal compliance process. Can I report internally and still be eligible for a whistleblower award?
Although internal reporting is not required to be considered for an award, you may be eligible for an award for information you reported internally if you also report the information to us within 120 days of reporting it internally. Under these circumstances, we will consider your place in line for determining whether your information is “original information” to be the date you reported it internally. In addition, if the company to which you reported conducts an investigation and reports the results to us, you will benefit from all the information the Company’s investigation turns up when we are considering whether you should receive an award and if so where the award should fall in the 10% to 30% range. See Rules 21F-4(b)(7) and 21F-4(c).
Can I submit my information anonymously?
Yes, you may submit anonymously. To do so, you must have an attorney represent you in connection with your submission. You must also provide the attorney with a completed Form TCR signed under penalty of perjury at the time you make your anonymous submission. See Rule 21F-7.
Will the SEC keep my identity confidential?
Whether or not you seek anonymity, the SEC is committed to protecting your identity to the fullest extent possible. For example, we will not disclose your identity in response to requests under the Freedom of Information Act. However, there are limits on our ability to shield your identity and in certain circumstances we must disclose it to outside entities. For example, in an administrative or court proceeding, we may be required to produce documents or other information which would reveal your identity. In addition, as part of our ongoing investigatory responsibilities, we may use information you have provided during the course of our investigation. In appropriate circumstances, we may also provide information, subject to confidentiality requirements, to other governmental or regulatory entities. See Rule 21F-7.
How will I learn about the opportunity to apply for an award?
We will post on this web site notices of actions exceeding $1 million in sanctions so that anyone who believes they may be eligible will have an opportunity to apply for a whistleblower award. In addition, if we have been working with you and believe you may be eligible, we will contact you or your attorney directly to alert you to the opportunity to apply for an award. See Rule 21F-10.
What factors does the SEC consider in determining the amount of the award?
The Rules require that we consider many factors in determining the amount of an award based on the unique facts and circumstances of each case.
The significance of the information you provided us to the success of any proceeding brought against wrongdoers.
The extent of the assistance you provide us in our investigation and any successful proceeding.
Our law enforcement interest in deterring violations of the securities laws by making awards to whistleblowers who provide information that leads to the successful enforcement of these laws.
Whether, and the extent to which, you participated in your company’s internal compliance systems, such as, for example, reporting the possible securities violations through internal whistleblower, legal or compliance procedures before, or at the same time, you reported them to the SEC
We may reduce the amount of an award based on these factors:
If you were a participant in, or culpable for the securities law violation(s) you reported.
If you unreasonably delayed reporting the violation(s) to us.
If you interfered with your company’s internal compliance and reporting systems, such as, for example, making false statements to your compliance department that hindered its efforts to investigate possible wrongdoing. See Rule 21F-6.
Can I appeal the SEC’s award decision?
It depends. If the Commission follows the factors described above, authorizes an award, and the amount awarded is between 10% and 30% of the monetary sanctions collected in the Commission or related action, then the Commission’s determination of the amount of the award is not appealable. If the Commission denies your application for an award, you may file an appeal in an appropriate United States Court of Appeals within 30 days of the decision being issued. See Rule 21F-13.
What rights do I have if my employer retaliates against me for submitting information to the SEC?
Employers may not discharge, demote, suspend, harass, or in any way discriminate against you because of any lawful act done by you in providing information to us under the whistleblower program or assisting us in any investigation or proceeding based on the information submitted. If you believe that your employer has wrongfully retaliated against you, you may bring a private action in federal court against your employer. If you prevail, you may be entitled to reinstatement, double back pay, litigation costs, expert witness fees, and attorneys fees. The Commission can also take legal action in an enforcement proceeding against any employer who retaliates against a whistleblower for reporting information to us. See Rule 21F-2.
Also, under the Sarbanes-Oxley Act, you may be entitled to file a complaint with the Department of Labor if you are retaliated against for reporting possible securities law violations, including making internal reports to your company. For more details, please see the OSHA Fact Sheet on filing whistleblower complaints under the Sarbanes-Oxley Act.
Jeffrey A. Newman represents whistleblowers and is a frequent lecturer and author on the topic of whistleblower law. His email address is jeff@jeffnewmanlaw.com
