On July 15, the Securities and Exchange Commission announced that it would be awarding an individual more than $1 million. No, it’s not a lottery: This person was reaping the promised reward of the SEC’s whistleblower program.
We don’t know a whole lot about the person who is receiving more than a million bucks from the federal agency tasked with regulating securities. Indeed, anonymity is part of the appeal of becoming an SEC whistleblower. Under the Dodd-Frank Act, whistleblower confidentiality is protected, and the SEC is barred from disclosing any information that could reveal a whistleblower’s identity. But we do know that this person, whoever he or she may be, participated in an interview with SEC staff and provided the SEC with documents which helped the agency bring an enforcement action.
“Today’s whistleblower played a critical role in the SEC bringing an enforcement action,” Emily Pasquinelli, Acting Chief of the SEC’s Office of the Whistleblower, said in a press release. “The whistleblower timely reported the securities law violations to the Commission and then played a key role in the successful resolution of the action.”
In many cases, the SEC relies on whistleblowers to identify possible fraud and other sorts of legal violations early on, before more investors are harmed. Congress has provided for cash payouts to some of these individuals who come forward with information about securities fraud or other types of wrongdoing within the financial sector.
There are fairly strict eligibility criteria. For one thing, in order to receive a monetary award, a whistleblower must provide high-quality, original information. In other words, there has to be a level of specificity that will at least allow an investigation to move forward, and the tip probably can’t be about something the SEC is already well aware of. Additionally, the information provided must actually lead to an enforcement action from the SEC, and that enforcement action must result in at least $1 million in sanctions being ordered.
Provided that the eligibility criteria are met though, the rewards can be substantial. The range for SEC whistleblower awards is anywhere from 10 percent to 30 percent of the money collected. Even 10 percent of what is collected in a large enforcement action can be a fairly overwhelming figure, and whistleblowers don’t have to be concerned about their awards coming from the investors they’re trying to protect, because all of the reward money is paid out through an investor protection fund which is replenished with sanctions paid by securities law violators. Recovered investor money goes back to the investors.
The SEC made its first award under its whistleblower program in 2012. Since then, the federal agency has awarded close to $939 million to 182 individual whistleblowers. I’ll save you from doing the math yourself on that one: This means that on average, eligible SEC whistleblowers are walking away with awards in excess of $5 million. Not bad for reporting legal violations that some would say you have an ethical duty to report even without realizing a huge payday at the end.
The latest SEC whistleblower award of a little more than a million bucks is small potatoes compared with the average payout since the program began. That being said, a cool million for doing the right thing sure doesn’t sound like a bad outcome.
Now might be a particularly good time to speak up for those who see securities laws being violated. Almost half of the total amount ever awarded through the whistleblower program was awarded in just the last 10 months, from September of last year to mid-July. More and more whistleblowers seem to be getting with the program. According to the SEC, from fiscal year 2012 to 2020, the annual number of whistleblower tips received by the agency grew by around 74 percent.
So, congratulations to the newest SEC whistleblower millionaire, whoever you are. And to all the readers out there, if you yourself have any hot info on securities laws being violated, I can think of about a million good reasons to report it.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.