Last week, the Securities and Exchange Commission announced an award payout of between $475,000 and $575,000 to a former company officer who reported information about an alleged securities fraud.  While this is by no means the largest of the 15 payouts the SEC has made since the inception of the whistleblower program in fiscal year 2012 (the SEC awarded approximately $14 million to a whistleblower in October 2013, and roughly $30 million to a foreign whistleblower almost a year later), it is the first time that the SEC provided a whistleblower bounty award under the new program to an officer who learned about the alleged fraud through another employee, rather than firsthand.

Under Dodd-Frank, an officer, director, trustee, or partner must provide the SEC with “original information” in order to be eligible for a whistleblower award.  To be considered “original information,” the whistleblower’s submission must (among other requirements), be “[d]erived from [the whistleblower’s] independent knowledge or independent analysis.”  This generally does not include instances in which the whistleblower learns about a fraud through another employee reporting the misconduct.  But there is an exception:  an officer may be eligible if he or she reports the information to the SEC more than 120 days after other responsible compliance personnel possessed the information and failed to adequately address the issue.  These were the circumstances under which the SEC granted the roughly half a million dollar whistleblower award in this case.

Andrew Ceresney, Director of the SEC’s Division of Enforcement, praised the actions of the officer who reported the information in this case, stating that “this particular officer should be commended for stepping up to report a securities law violation when it became apparent that the company’s internal compliance system was not functioning well enough to address it.”  Chief of the SEC’s Office of the Whistleblower Sean McKessy acknowledged that information and cooperation from corporate insiders is “particularly useful in the early detection of securities fraud.”  He also confirmed the SEC’s intent to “continue to leverage whistleblower information to help combat securities law violations and better protect investors and the marketplace.”

So what might this mean moving forward?  Just as the number of tips received from whistleblowers increased significantly in the year following the implementation of the whistleblower program (the SEC received 3,001 in fiscal year 2012 vs. 334 tips in fiscal year 2011), the SEC’s granting of this award may prompt a new wave of tips from additional sources – company insiders eligible to satisfy the 120-day exception under Dodd-Frank may begin more diligently counting down the days until they can report allegedly fraudulent activity they learn of through others.  While it remains to be seen, the granting of this award may also prompt companies to implement additional measures to ensure that information reported internally is investigated and addressed in a prompt manner.