Following the corporate and financial scandals of the early 2000’s – think Enron, WorldCom, Bernie Madoff, and the like – Congress in 2010, as part of the Dodd-Frank Act, created the SEC Whistleblower Program as a way to deter financial fraud by empowering ordinary individuals to come forward with original information of violations of securities law violations, and rewarding them with financial compensation in the process.
Since 2011, the SEC Whistleblower Program has paid out over $1 billion in compensation to individuals who have acted as whistleblowers in providing information to the SEC that led to successful SEC enforcement actions. While oftentimes a whistleblower is an employee of an organization where financial wrongdoing has taken place, even an outsider with evidence of wrongdoing may be eligible for compensation under the program.
It is important to work with experienced whistleblower counsel in bringing forward information leading to a successful SEC whistleblower reward, in order to best develop and present your information to the SEC, while protecting yourself from retaliation and other collateral consequences in the process, and the experienced attorneys of Zweiback, Fiset, and Zalduendo have the skills necessary to guide you through each step of the process in pursuing your SEC whistleblower action.
SEC Whistleblower Reward Program
A whistleblower who provides information to the SEC leading to a successful enforcement action leading to monetary sanctions exceeding $1 million is eligible to receive an award of between 10 and 30 percent of the monetary sanctions imposed in such an action. Past SEC enforcement actions have led to whistleblower rewards in the amounts of $114 million, $110 million, and $50 million, respectively.
In determining what percentage of the monetary sanctions should be rewarded to the whistleblower, the SEC uses the following criteria:
- The significance of the information provided by the whistleblower to the success of the enforcement action
- The degree of assistance provided by the whistleblower and any legal representative of the whistleblower in an enforcement action
- The interest of the SEC in deterring violations of securities laws by making awards to whistleblowers who provide information that lead to the successful enforcement of such laws; and
- Any such additional relevant factors that the SEC may establish by rule or regulation.
SEC Whistleblower Lawyers’ Tips to Qualify for an SEC Whistleblower Award
Again, it is not necessary for a whistleblower to actually have been employed by a company engaged in wrongdoing, although many whistleblowers are indeed such employees. To be a successful whistleblower, you must provide the SEC with information in writing that relates to a possible violation of federal securities laws that has occurred, is ongoing, or is about to occur, and that information should be significant enough that it may eventually lead to the imposition of monetary sanctions of over $1 million.
In the SEC’s own words, “the more specific, credible, and timely a whistleblower tip, the more likely it is that the tip will be forwarded to investigative staff for further follow-up or investigation.” The SEC encourages whistleblowers to provide information that “identifies individuals involved in the scheme, provides examples of particular fraudulent transactions, or points to non-public materials evidencing the fraud.”
Any violation of federal securities laws may form the basis of a successful whistleblower tip, and the SEC is particularly interested in evidence of wrongdoing related to:
- Ponzi schemes, pyramid schemes, or high-yield investment programs
- Theft or misappropriation of funds or securities
- Manipulation of a security’s price or volume
- Insider trading
- Fraudulent or unregistered securities offerings
- False or misleading statements about a company
- Abusive naked short selling
- Bribery of foreign officials (Foreign Corrupt Practices Act or “FCPA” violations)
- Fraudulent conduct associated with municipal securities transactions or public pension plans
- Initial coin offerings (ICOs) and cryptocurrencies
A person may submit a tip to the SEC Whistleblower Program anonymously, but that person must be represented by legal counsel to be eligible for a financial reward.
SEC Whistleblower Protection Against Retaliation
Many potential whistleblowers are justifiably concerned about retaliation they might endure as a result of exposing wrongdoing. After all, it is not unthinkable that those who violate federal securities laws to enrich themselves might take unjustified actions against those who threaten to bring their illegal action to light.
The SEC whistleblower program, however, includes specific prohibitions against retaliation. Pursuant to federal law, no employer may – either directly or indirectly – discharge, demote, suspend, threaten, harass, or in any other manner discriminate against a whistleblower because of the lawful acts of a whistleblower in providing information to the SEC in pursuing a whistleblower action.
If an employer is found to have wrongfully retaliated against an employee in pursuing a whistleblower action, the employee can obtain: 1) reinstatement in their prior position; 2) 2 times the amount of back pay otherwise owed to the employee; and 3) compensation for litigation costs and attorney’s fees.
In addition to the above protections, SEC regulations prohibit any person from taking any action to prevent a whistleblower – whether that whistleblower is an employee of the potentially offending entity or not – from communicating with the SEC about a possible securities law violation, and any person who does act to prevent a person from reporting is subject to an SEC enforcement action for having done so. Said SEC regulations also prevent any person from inducing another to sign an agreement indicating they will not report securities law violations to the federal government.
Benefits of Retaining an Effective SEC Whistleblower Attorney
In general, potential SEC whistleblowers are strongly encouraged to work with experienced legal counsel in developing and providing whistleblower tips to the SEC in order to maximize their opportunity to obtain a significant financial reward and to properly protect themselves against retaliation.
If you have information that you believe may form the basis of an SEC Whistleblower Reward Program submission, contact our office today to schedule a confidential consultation with one of our experienced SEC Whistleblower attorneys.