U.S. Securities and Exchange Commission Whistleblower Program

Dodd-Frank provided an overhaul of the nation’s financial regulations and created a system to incentivize individuals to come forward with information about fraud and misconduct in the financial sector. The Dodd-Frank Act permits a monetary award to individuals who voluntarily provide information to the U.S. Securities and Exchange Commission (SEC), if that information leads to a successful enforcement action and monetary sanctions over $1 million.  A whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected.

The SEC established the Office of the Whistleblower (OWB) in 2012 to administer the whistleblower program. The OWB typically receives over 5,000 tips a year from whistleblowers. Since its creation, the OWB has paid out more than $1 billion in awards to whistleblowers.

SEC Whistleblowers

Whistleblowers can report anonymously and be eligible for an award for exposing any violation of the federal securities laws, including:

• Accounting fraud
• Auditor independence rule violations
• Blockchain and cryptocurrency fraud
• Cybersecurity disclosure violations
• Deceptive non-GAAP financials
• False or misleading statements about a company or investment
• Foreign bribery and other FCPA violations
• Fraudulent securities offerings
• Hedge fund fraud
• Improper revenue recognition
• Inadequate internal controls
• Insider trading
• Investment adviser fraud
• Investment & securities fraud
• Manipulation of a security’s price or volume
• Money laundering violations
• Ponzi or pyramid schemes
• Unregistered broker-dealers

The most common tips the SEC receives are related to corporate disclosures and financials, as well as fraud and manipulation. The SEC has also brought cases based on whistleblower tips about securities violations involving Ponzi schemes, false or misleading statements in company offering memorandums or marketing materials, and FCPA violations.

Most whistleblowers who receive awards for the information they provide are current or former company insiders. However, it is not required that a whistleblower be an insider at the company about which they are reporting. In fact, almost one of every three successful SEC whistleblowers does not work for the company in question. Many whistleblowers are professionals working in the industry, investors, or individuals with special expertise in the market. These individuals might not have insider knowledge, but they can still recognize fraud committed by other companies or individuals.

Confidentiality and Retaining an Attorney

Potential whistleblowers are often afraid to report fraud because they fear retaliation from their employer or other harmful consequences. Fortunately, unlike many other whistleblower programs, the SEC allows whistleblowers to submit information anonymously. Dodd-Frank also prohibits the SEC from disclosing information that could reveal the identity of a whistleblower. However, whistleblowers who want to submit their information anonymously must retain an attorney to submit the information on their behalf.

The SEC does not tolerate retaliation against whistleblowers. Retaliation may include firing someone, stripping them of their duties, or reassigning them to another role because they reported a violation to the SEC. The SEC will take enforcement action against companies or individuals who retaliate against whistleblowers, or who try to impede a whistleblower from reporting violations. Providing these protections is important so whistleblowers know they are safe, and they can be confident in reporting the information they have about fraud to the SEC.

While an attorney can assist in keeping your identity confidential and ensuring you are protected, it is also important to seek the guidance of an attorney before submitting a tip to the SEC. Although the SEC permits whistleblowers to submit information on their own, some whistleblowers miss out on getting their tip picked up by the SEC—and miss out on a whistleblower award—because they do not articulate the information correctly.

An attorney will speak with you, discuss your case, and organize and present all the information in the most effective manner so it gets picked up by the SEC and assigned to an investigator. The SEC receives many frivolous claims each day and expends valuable resources trying to sort through all the reported claims in search of the tips with legitimate, actionable information. It is best to work with an attorney to make sure your claim gets noticed by the SEC and you maximize your chances of receiving a whistleblower award.

Successful complaints reported to the SEC include:

• Specific information (e.g., identifying individuals involved in the misconduct; providing documents; identifying specific fraudulent transactions)
• Providing additional assistance to the SEC through meetings, interviews, or testimony
• Helping explain highly complex or technical issues

An experienced whistleblower attorney can discuss these and other issues with you as you prepare to submit your information to the SEC.

SEC Whistleblower Rewards

Under the SEC Whistleblower Program, the SEC issues awards to whistleblowers who provide original information that leads to enforcement actions with total monetary sanctions over $1 million. To be eligible for an award, the whistleblower must provide original information to the SEC that causes the SEC to open an investigation into the matter, or the information provided by the whistleblower must significantly contribute to an already active investigation. As a reward for their assistance with the investigation, a whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected.

Below are some recent cases of whistleblower awards:

• $83 million (2018) – Three whistleblowers shared this award in a case alleging that Merrill Lynch executed complex options trades that lacked economic substance and artificially reduced the required deposit of customer cash in the reserve account.
• $54 million (2018) – Two whistleblowers shared this award, with one whistleblower receiving $39 million—the second-largest award ever given to a single whistleblower in the history of the program.
• $50 million (2020) – A trader from Bank of New York Mellon alerted the SEC about the bank’s reported practice of overcharging large pension funds on currency trades. By providing inflated exchange rates, the bank allegedly was able to make enormous profits. This action led to the largest award ever given to a single whistleblower in the history of the program.
• $50 million (2019) – Two whistleblowers shared this award—with one whistleblower receiving $37 million—for providing information that led to a successful enforcement action against JPMorgan Chase.
• $30 million (2014) – This award was given to a whistleblower living in a foreign country who alerted the SEC to ongoing securities fraud that would have been extremely difficult for the SEC to detect on its own.
• $28 million (2021) – A whistleblower informed the SEC that Panasonic Avionics paid a government official at a state-owned airline in exchange for receiving business from the airline. The company paid $280 million to resolve allegations that it violated the Foreign Corrupt Practices Act and engaged in accounting fraud. The whistleblower received ten percent of this recovery.
• $27 million (2020) – The SEC provided this award for information that led to a successful enforcement action regarding misconduct that occurred in part overseas.

Our Team

With more than 30 years of experience, the attorneys on Baron & Budd’s whistleblower representation team have represented dozens of clients in government fraud cases returning over $5.4 billion to federal and state agencies, with whistleblower recovery shares as high as 49%. They are ready to help if you have evidence of securities violations.

Please call (866) 845-2164 or complete our contact form if you would like more information. For more information, see What You Need to Know About Becoming a Whistleblower. Please understand that contacting us does not mean that you have established an attorney-client relationship with Baron & Budd, P.C.