The Securities and Exchange Commission (SEC) has announced its second largest whistleblower award yet - $17 million - to be paid to an anonymous individual who supplied information that led to a successful agency investigation and financial recovery on securities fraud damages.
Whistleblower Tip Could Lead to $170M SEC Recovery
The SEC whistleblower program does not release details of its cases, investigations or underlying enforcement actions, though given the $17 million award amount, the total amount recovered by the SEC could fall in the range of $56.7 million to $170 million. A fund has been established by Congress to pay the whistleblower awards, financed with monies obtained from successful enforcement actions.
SEC Recent History – Large Whistleblower Cash Rewards
With a reputation for paying substantial sums for information leading to securities fraud cash recoveries, the first SEC whistleblower award offered in an anti-retaliation case was for the maximum possible amount (30% of the settlement amount).
The largest ever SEC award of $30 million was granted in September 2014 to an anonymous foreign whistleblower, who stated:
"I was very concerned that investors were being cheated out of millions of dollars and that the company was misleading them about its actions. Deception had become an accepted business practice.”
Prior to that award, the most the SEC had offered a whistleblower was $14 million, paid in October 2013 for a tip exposing an alleged plot to scam overseas investors who were pursuing U.S. residency.
Insider Tips from Finance and Securities Industry the Norm
“In the past month, five whistleblowers have received a total of more than $26 million, and we hope these substantial awards encourage other individuals with knowledge of potential federal securities law violations to make the right choice to come forward and report the wrongdoing to the SEC,” said chief of the SEC Office of the Whistleblower, Sean X. McKessy.
Tips are typically brought in by bookkeepers, investors, bankers, tellers, financial advisors and other professionals who are in the unique position to learn of activity that may be occurring in an attempt to defraud the government.
“Company insiders are uniquely positioned to protect investors and blow the whistle on a company’s wrongdoing by providing key information to the SEC so we can investigate the full extent of the violations,” director of the SEC’s Enforcement Division, Andrew Ceresney, said in a statement. “The information and assistance provided by this whistleblower enabled our enforcement staff to conserve time and resources and gather strong evidence supporting our case.”
Whistleblowers establish their eligibility for a cash award by providing original information to the SEC that leads investigators to recover fraudulently obtained funds or funds obtained through securities law violations of more than $1 million via enforcement action. The cash awards range between 10% and 30% of the total recovery obtained through settlement or verdict.
SEC Whistleblower Tips on the Rise: The Numbers
The SEC Office of the Whistleblower has seen an increase in tips every year since 2011, and attributes these increases to the “increased public awareness of the SEC’s whistleblower program” and “in response to the tens of millions of dollars that have been paid to whistleblowers under the program.”
A record number of tips (3,923) on securities fraud were received by the SEC in fiscal year 2015, up 8% from 2014. Eight whistleblowers were awarded a collective $37 million last year, or 68% of the total $85 million payout since the SEC whistleblower program’s inception in August 2011.