On October 1, 2013, the Securities and Exchange Commission announced that it had awarded over $14 million to an unnamed whistleblower who voluntarily came forward with information that led to a successful enforcement action and the recovery of a substantial amount of investor funds. In the official order setting forth the award determination, the Commission indicated that the award reflected the whistleblower’s level of cooperation, the significance of the information provided, and the Commission’s strong interest in deterring illegal conduct through the use of whistleblower awards.
The more than $14 million award is the largest handed out by the Commission since the inception of the Office of the Whistleblower in 2011. SEC Chair Mary Jo White stated that the Commission “hope[s] an award like this encourages more individuals with information to come forward.” Such insider cooperation and self-reporting has helped uncover fraudulent schemes at earlier stages, thereby lessening investor harm and allowing the Commission to conduct more efficient investigations. In this particular instance, it took less than six months from the receipt of the whistleblower’s tip for the Commission to initiate its enforcement action. Previous whistleblower payments have included a $50,000 award in August 2012 and a $125,000 award earlier this year.
The Office of the Whistleblower was established as part of the post-financial crisis regulatory reforms contained in the Dodd-Frank Act and continues to be heavily advertised on the Commission’s website. Whistleblowers can submit tips to the Office through a Form-TCR by fax, mail, or the online questionnaire portal. The award program was designed to centralize the intake of tips in order to ensure that important information reaches investigators and to incentivize insiders to come forward with valuable information. The identities of informants are protected by law to ensure confidentiality throughout the process. A whistleblower who provides information leading to a successful enforcement action in which at least $1 million in sanctions is imposed may receive an award ranging between ten percent and thirty percent of the money collected by the Commission. In the 2012 fiscal year, the Office reported that it received more than 3000 tips originating from all fifty states.
In addition to the whistleblower award program, the Commission’s Enforcement Division has developed three non-monetary initiatives to encourage wrongdoers to cooperate with investigations once they are already underway. The first, a Cooperation Agreement, is a formal written agreement in which the Enforcement Division agrees to recommend leniency to the Commission on the basis of the wrongdoer’s cooperation with the investigation. Through a Deferred Prosecution Agreement, the Commission agrees to forego prosecution for a specified period of time provided the entity or individual cooperates fully and complies with any prohibitions imposed. The most powerful non-monetary incentive is a Non-Prosecution Agreement in which the Commission agrees to forego an enforcement action related to a particular matter where the cooperation and compliance by the entity or individual is such that the Commission deems it unnecessary to take further enforcement steps.
Between the potentially significant monetary awards issued by the Office of the Whistleblower and the Enforcement Division’s Enforcement Cooperation Program, the Commission hopes to encourage those individuals in the best position to provide tips to continue to come forward and cooperate so that the Commission can more effectively and efficiently police the financial industry.