December 3, 2014
A recent $30 million award given to a whistleblower is another example illustrating the success of the US Securities and Exchange Commission’s whistleblower program. The program dispensed nine awards in 2014, more than in any other previous year. Awards were given to people who provided information about violations of federal securities laws. The program had previously given only four awards total.
A total of 3,620 whistleblower tips were received in 2014, which was approximately 20% higher than previous years.
Names of whistleblowers are not made public by the SEC, in an effort to curb retaliation, but when it does occur, the SEC takes legal action. In one instance, the commission successfully brought action against a retaliation attempt when it ordered Paradigm Capital Management to pay more than $2 million for punishing the firm’s head trader for reporting unlawful transactions. There are several additional private retaliation cases pending.
Goal of Program to Encourage Reporting
The purpose of the whistleblower program is to encourage those who know of wrongdoing to report what they know to authorities. The US Congress has authorized the SEC to award whistleblowers in instances in which information leads to the recovery of $1 million or more.
Awards are based on the funds collected and vary from case to case, based on the significance of the information and the willingness of the whistleblower to assist the SEC. Awards range from 10 to 30 percent of the funds collected. Occasionally, award funds are divided between whistleblowers if information from more than one person is useful to the SEC in investigating wrongdoing. For example, in one 2013 case, three different reporters were awarded 15, 10, and 5 percent of an award.
Awards are given through the Office of the Whistleblower. Those at the SEC understand coming forward can be risky for whistleblowers and they have taken every possible action to provide protection for those reporting information.
Protecting Victims and Reporters
A fund was created from which to pay the whistleblower awards, so as not to reduce the amount recovered for victims of the violations. In some cases, it is possible to pay awards out of the recovered funds without affecting victims. 2014’s fund included nearly $40 million, only $2 million of which was given to informants
The recent $30 million award was given to a non-American informant. It was the fourth time the SEC has paid a whistleblower outside of the country. The hope of the SEC is to encourage companies and industry insiders both inside the USA and in other countries to take action when they know of law violations.
Another 2014 case awarded a whistleblower $400,000 for reporting fraud. The SEC believed this award sent an important message that financial firms must take action against employees if they suspect wrongdoing.
The SEC believes reports of securities violations can be a powerful weapon in the enforcement of laws related to financial investment and management. People “on the inside” get a unique look into the practices of companies and individuals in the securities and exchanges field. Information provided by these people can lead to the launch of an investigation or act as the final piece of the puzzle in a current investigation.
When laws are broken, whistleblowers have the opportunity to help the SEC identify fraud and other violations earlier than they might otherwise be discovered. This makes it possible for action to be taken to reduce the damage done to victims and better protect the integrity of the US capital markets. Swift action also discourages future wrongdoing.
A complete list of awards and denials of awards for 2014 is available at www.sec.gov/whistleblower.