Who Wants to be a Millionaire? Compliance Officer Whistles His Way to a Million Dollar Pay Day


Last week the SEC announced an award of between $1.4 to $1.6 million to a whistleblower who provided information that assisted the SEC in an enforcement action. The enforcement action against the whistleblower’s company resulting in monetary sanctions exceeding $1 million.  This marks the second award to a whistleblower with an internal audit or compliance function at a company.  The first was back in August 2014, when the SEC awarded a whistleblower in internal auditing/compliance with over $300,000.  Here, as with the prior award, the officer had a reasonable basis for believing that disclosure to the SEC was necessary to prevent imminent misconduct from causing substantial financial harm to the company or investors.  In both cases, responsible management was made aware of the potential harm that could occur, yet failed to take steps to prevent it.

Since the whistleblower program began in 2011, the SEC has paid over $50 million to 16 whistleblowers.  Only those who have voluntarily provided the SEC with high-quality, original information leading to a successful enforcement action involving sanctions exceeding $1 million are eligible for an award under this program.  Information is considered “original” if it is derived from his or her “independent knowledge or independent analysis.”  17 C.F.R. § 240.21F-4(b)(1).  As a general matter, the SEC does not consider information derived from “independent” knowledge or analysis when the whistleblower’s principal duties involve compliance or internal auditing.  However, the Chief of the SEC’s Office of the Whistleblower Sean McKessy has noted before that those who perform internal audit and/or compliance functions at a company are often the best-situated to prevent fraud and corruption as they are “privy to the very kinds of specific, timely and credible information that can prevent an imminent fraud or stop an ongoing one.”  Under such circumstances, an exception to the whistleblower rules may be applicable, allowing compliance officers and internal auditors to be eligible for awards.  Whistleblowers are protected by law, and the SEC is not permitted to disclose any information that may directly or indirectly reveal their identities.

Whistleblower awards may range from 10 to 30 percent of the money collected in a case.  All payments are made from an investor protection fund established by Congress, not taken from any proceeds directed to harmed investors.  This fund is financed entirely through monetary sanctions paid to the SEC by those found liable of violating securities laws.