Here’s a Tip: “Substantial and Important Contributions” to Pre-Existing SEC Investigations Can Pay Off For Whistleblowers

In a move evidencing the SEC’s continued commitment to its whistleblower program, the Commission announced on Friday that it has awarded a whistleblower over $3.5 million for providing information that did not lead to a new investigation, but rather only served to bolster an ongoing investigation.  This decision came after the SEC’s Claims Review Staff preliminarily determined that the SEC should deny the whistleblower claim because the information provided by the individual did not appear to “cause Enforcement staff to open the investigation or to inquire into different conduct, nor . . . to have significantly contributed to the success” of the action.  But after reviewing the whistleblower’s written response for reconsideration, in addition to factual information from staff in the Division of Enforcement, the Commission changed course, determining that the information indeed “significantly contributed” to the success of the SEC’s action, and approving the award.

While the SEC has awarded more than $62 million to 28 whistleblowers since the program was established in 2011, whistleblowers have in almost every case to date been rewarded for their efforts in calling the SEC’s attention to a potential violation, leading to a new investigation which in turn results in a successful enforcement action.  But in announcing this latest award, SEC Enforcement Division Director Andrew Ceresney made clear that whistleblowers can receive an award “not only when their tip initiates an investigation, but also when they provide new information or documentation that advances an existing inquiry.”  Thus, the SEC is encouraging whistleblowers to come forward and report allegations of potential violations to the SEC even if they believe the SEC is already looking into the matter.

In this case, Ceresney explained that the whistleblower’s tip “substantially strengthened our ongoing case and increased our leverage during settlement negotiations with the company.”  According to the SEC’s Order, available here, the SEC’s investigation arose in response to media reports concerning the company’s potential misconduct, and the scope of the investigation was later expanded.  The whistleblower’s “detailed” tip related to an issue that Enforcement staff was apparently already aware of, but “provided certain new information . . . along with supporting documentation.”  In addition, relying heavily on information received from Enforcement staff, the SEC found that the whistleblower’s information “caused Enforcement staff to focus on” something that “staff might otherwise not have” focused on, and “meaningfully” increased the staff’s leverage during settlement negotiations, thus “significantly contribut[ing] to the successful enforcement of the Action.”

Whistleblowers are eligible to receive 10 to 30 percent of the money collected when monetary sanctions exceed $1 million; thus, in this case, the company was likely liable for sanctions of $11 to $35 million.  Interestingly, in determining the amount to award, the SEC noted in its Order that as part of its assessment, it considered “certain unique hardships experienced” by the whistleblower as a result of his or her decision to report the potential wrongdoing to the Commission.  In particular, the Commission found that the whistleblower “has been unable to find employment since reporting the misconduct and that this is significantly due to [his or her] whistleblowing activities.“

Through this substantial award, the SEC continues to demonstrate its commitment to promoting its whistleblower program as a means for generating enforcement leads—now, even with respect to investigations already in progress.