Difference between revisions of "SEC Whistleblower Program"

Under the SEC Whistleblower Program, the SEC will issue awards to whistleblowers who provide original information that leads to enforcement actions with total monetary sanctions (penalties, disgorgement, and interest) in excess of $1 million. In exchange for the valuable information, '''a whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected.'''

Under the SEC Whistleblower Program, the SEC will issue awards to whistleblowers who provide original information that leads to enforcement actions with total monetary sanctions (penalties, disgorgement, and interest) in excess of $1 million. In exchange for the valuable information, '''a whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected.'''

'''Whistleblowers need not be U.S. citizens to be eligible for SEC whistleblower awards.''' According to the [https://www.transparency.org/en/news/corruption-perceptions-index-2017 2017 Corruption Perceptions] Index, a majority of countries are making little or no progress in ending corruption. This finding is consistent with [https://www.pwc.com/gx/en/services/forensics/economic-crime-survey.html/ PwC’s 2018 fraud survey], which reported the highest fraud levels in organizations in the past 20 years, and the [https://www.pwc.com/gx/en/services/forensics/economic-crime-survey.html/ ACFE’s 2021 fraud survey], which reported that 51% of organizations have uncovered more fraud since the pandemic and 71% of anti-fraud professionals expect the level of fraud to increase over the next year. As the SEC continues to promote worldwide public awareness of the SEC Whistleblower Program, we expect to see an increase in whistleblower tips and awards in the coming years.

'''Whistleblowers need not be U.S. citizens to be eligible for SEC whistleblower awards.''' According to the [https://www.transparency.org/en/news/corruption-perceptions-index-2017 2017 Corruption Perceptions] Index, a majority of countries are making little or no progress in ending corruption. This finding is consistent with [https://www.pwc.com/gx/en/services/forensics/economic-crime-survey.html/ PwC’s 2018 fraud survey], which reported the highest fraud levels in organizations in the past 20 years, and the [https://www.pwc.com/gx/en/services/forensics/economic-crime-survey.html/ ACFE’s 2021 fraud survey], which reported that 51% of organizations have uncovered more fraud since the pandemic and 71% of anti-fraud professionals expect the level of fraud to increase over the next year. As the SEC continues to promote worldwide public awareness of the SEC Whistleblower Program, we expect to see an increase in whistleblower tips and awards in the coming years.

The report also indicates that the '''[https://www.dandodiary.com/2020/07/articles/whistleblowers/guest-post-how-the-sec-whistleblower-program-has-changed-corporate-compliance-and-sec-enforcement/ SEC Whistleblower Program is gaining momentum]'''. In particular, the SEC Office of the Whistleblower, which first opened its doors in August 2011, has issued a majority of the whistleblower awards in the past several years:

The report also indicates that the '''[https://www.dandodiary.com/2020/07/articles/whistleblowers/guest-post-how-the-sec-whistleblower-program-has-changed-corporate-compliance-and-sec-enforcement/ SEC Whistleblower Program is gaining momentum]'''. In particular, the SEC Office of the Whistleblower, which first opened its doors in August 2011, has issued a majority of the whistleblower awards in the past several years:

Notably, FY 2021 is shaping up to be the best year in the SEC Whistleblower Program’s history. '''On October 22, 2020, the SEC issued the largest whistleblower award in the program’s history of [https://www.sec.gov/news/press-release/2020-266 $114 million]'''. In addition, according to the SEC’s 2020 [https://www.sec.gov/files/sec-2020-agency-financial-report_1.pdf Agency Report], the SEC recognized a $255 million contingent liability for potential whistleblower awards to be paid in FY 2021.

Notably, FY 2021 is shaping up to be the best year in the SEC Whistleblower Program’s history. '''On October 22, 2020, the SEC issued the largest whistleblower award in the program’s history of [https://www.sec.gov/news/press-release/2020-266 $114 million]'''. In addition, according to the SEC’s 2020 [https://www.sec.gov/files/sec-2020-agency-financial-report_1.pdf Agency Report], the SEC recognized a $255 million contingent liability for potential whistleblower awards to be paid in FY 2021.

In 2011, the SEC Office of the Whistleblower was created pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to run the SEC Whistleblower Reward Program. The program offers monetary incentives to individuals who report information about violations of the federal securities laws to the SEC. '''[https://www.forbes.com/sites/realspin/2017/07/18/one-billion-reasons-why-the-sec-whistleblower-reward-program-is-effective/?sh=6b06bf9a3009#526977113009 In its short history, the SEC Whistleblower Reward Program has been extraordinarily successful in enabling the SEC root out securities fraud and protect investors.]''' To date, the SEC Office of the Whistleblower has issued more than $500 million in awards to whistleblowers.

In 2011, the SEC Office of the Whistleblower was created pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to run the SEC Whistleblower Reward Program. The program offers monetary incentives to individuals who report information about violations of the federal securities laws to the SEC. '''[https://www.forbes.com/sites/realspin/2017/07/18/one-billion-reasons-why-the-sec-whistleblower-reward-program-is-effective/?sh=6b06bf9a3009#526977113009 In its short history, the SEC Whistleblower Reward Program has been extraordinarily successful in enabling the SEC root out securities fraud and protect investors.]''' To date, the SEC Office of the Whistleblower has issued more than $500 million in awards to whistleblowers.

Under the rules of the program, the SEC Office of the Whistleblower is required to issue awards to eligible whistleblowers who provide original information that leads to successful enforcement actions with total monetary sanctions in excess of $1 million. In exchange for the specific and credible tips, '''whistleblowers will receive an award of between 10% and 30% of the total monetary sanctions collected.''' The SEC considers positive and negative factors when determining an award percentage.

Under the rules of the program, the SEC Office of the Whistleblower is required to issue awards to eligible whistleblowers who provide original information that leads to successful enforcement actions with total monetary sanctions in excess of $1 million. In exchange for the specific and credible tips, '''whistleblowers will receive an award of between 10% and 30% of the total monetary sanctions collected.''' The SEC considers positive and negative factors when determining an award percentage.

To date, the SEC Whistleblower Office has issued approximately [https://www.zuckermanlaw.com/sp_faq/largest-sec-whistleblower-awards/ $1 billion in awards to whistleblowers.] The [/https://www.zuckermanlaw.com/sp_faq/largest-sec-whistleblower-awards/ largest SEC whistleblower awards to date] are $50 million, $39 million, and $37 million. For more information about the SEC Whistleblower Program, see the eBook [https://www.zuckermanlaw.com/sec-whistleblower-lawyers/ Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.]

To date, the SEC Whistleblower Office has issued approximately [https://www.zuckermanlaw.com/sp_faq/largest-sec-whistleblower-awards/ $1 billion in awards to whistleblowers.] The [/https://www.zuckermanlaw.com/sp_faq/largest-sec-whistleblower-awards/ largest SEC whistleblower awards to date] are $50 million, $39 million, and $37 million. For more information about the SEC Whistleblower Program, see the eBook [https://www.zuckermanlaw.com/sec-whistleblower-lawyers/ Tips from SEC Whistleblower Attorneys to Maximize an SEC Whistleblower Award.]

Many factors affect the amount of a whistleblower award. The SEC may increase the amount of an award based on the following factors:

Many factors affect the amount of a whistleblower award. The SEC may increase the amount of an award based on the following factors:

##made materially false statements, or provided false documents, to hinder your company’s ability to detect, investigate, or remediate the violation

##made materially false statements, or provided false documents, to hinder your company’s ability to detect, investigate, or remediate the violation

* [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Accounting_fraud Accounting fraud]

* [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Accounting_fraud Accounting fraud]

* [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Investment_fraud Investment fraud]

* [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Investment_fraud Investment fraud]

* [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Misleading_or_Incomplete_Cybersecurity_Disclosures Misleading or Incomplete Cybersecurity Disclosures]

* [https://whistleblower-rewards-and-protections-wiki.zuckermanlaw.com/index.php/Misleading_or_Incomplete_Cybersecurity_Disclosures Misleading or Incomplete Cybersecurity Disclosures]

In September 2020, the [https://www.zuckermanlaw.com/sec-adopts-amendments-to-whistleblower-rules-that-will-strengthen-some-aspects-of-the-program-but-also-reduce-large-awards-and-limit-protection-against-retaliation/ SEC revised its whistleblower rules] to add a new paragraph (3) to existing Rule 21F-4(d) to provide that the term “administrative action” includes a deferred prosecution agreement (“DPA”) or a non-prosecution agreement (“NPA”) entered into by DOJ as well as a settlement agreement entered into by the SEC outside of the context of a judicial or administrative proceeding to address violations of the securities laws; and further that any money required to be paid in such actions will be deemed a “monetary sanction” within the meaning of Rule 21F-4(e).

In September 2020, the [https://www.zuckermanlaw.com/sec-adopts-amendments-to-whistleblower-rules-that-will-strengthen-some-aspects-of-the-program-but-also-reduce-large-awards-and-limit-protection-against-retaliation/ SEC revised its whistleblower rules] to add a new paragraph (3) to existing Rule 21F-4(d) to provide that the term “administrative action” includes a deferred prosecution agreement (“DPA”) or a non-prosecution agreement (“NPA”) entered into by DOJ as well as a settlement agreement entered into by the SEC outside of the context of a judicial or administrative proceeding to address violations of the securities laws; and further that any money required to be paid in such actions will be deemed a “monetary sanction” within the meaning of Rule 21F-4(e).

This proposed addition to Rule 21F-4 sought to make awards available to meritorious whistleblowers in cases where these alternative vehicles are used to address violations of law. Its premise was the same as that underlying current Rule 21F-4(d)(1) — that Congress did not intend for meritorious whistleblowers to be denied awards simply because of the procedural vehicle that the SEC (or another governmental entity) has selected to resolve an enforcement matter.

This proposed addition to Rule 21F-4 sought to make awards available to meritorious whistleblowers in cases where these alternative vehicles are used to address violations of law. Its premise was the same as that underlying current Rule 21F-4(d)(1) — that Congress did not intend for meritorious whistleblowers to be denied awards simply because of the procedural vehicle that the SEC (or another governmental entity) has selected to resolve an enforcement matter.

The September 2020 SEC release adopting [https://www.sec.gov/rules/final/2020/34-89963.pdf amendments] to the rules governing the [https://www.zuckermanlaw.com/sp_faq/sec-whistleblower-program/ SEC Whistleblower Program] explains the rationale for deeming payments made under DPAs and NPAs as “monetary sanctions” on which an award can be based:

The September 2020 SEC release adopting [https://www.sec.gov/rules/final/2020/34-89963.pdf amendments] to the rules governing the [https://www.zuckermanlaw.com/sp_faq/sec-whistleblower-program/ SEC Whistleblower Program] explains the rationale for deeming payments made under DPAs and NPAs as “monetary sanctions” on which an award can be based:

The rule we are adopting today includes settlement agreements similar to DOJ DPAs and NPAs entered into by the Commission outside of the context of a judicial or administrative proceeding. In our practice, these agreements have included key provisions typically analogous to those found in DOJ DPAs and NPAs that warrant also treating them as “administrative actions,” with the payments required under these agreements constituting “monetary sanctions.” Among the provisions that we deem important to our analysis are: (1) substantial continuing obligations on the part of the respondent (e.g., detailed and specific cooperation requirements and a requirement that any successors to the respondent be bound by the agreement); (2) specificity as to conduct that constitutes a violation of the agreement (e.g., further violations of the federal securities laws, provision of false information, and failure to make payments on the schedule and in the amounts due); (3) tolling of applicable statutes of limitations; and (4) clear and substantial consequences for default, including the respondent’s agreement not to contest or challenge the admissibility in a future enforcement action of factual statements supporting the Commission’s case that are recited as part of the agreement, as well as the respondent’s consent to the use of any documents, testimony, or other evidence previously provided by it in a future enforcement action resulting from its violations.

The rule we are adopting today includes settlement agreements similar to DOJ DPAs and NPAs entered into by the Commission outside of the context of a judicial or administrative proceeding. In our practice, these agreements have included key provisions typically analogous to those found in DOJ DPAs and NPAs that warrant also treating them as “administrative actions,” with the payments required under these agreements constituting “monetary sanctions.” Among the provisions that we deem important to our analysis are: (1) substantial continuing obligations on the part of the respondent (e.g., detailed and specific cooperation requirements and a requirement that any successors to the respondent be bound by the agreement); (2) specificity as to conduct that constitutes a violation of the agreement (e.g., further violations of the federal securities laws, provision of false information, and failure to make payments on the schedule and in the amounts due); (3) tolling of applicable statutes of limitations; and (4) clear and substantial consequences for default, including the respondent’s agreement not to contest or challenge the admissibility in a future enforcement action of factual statements supporting the Commission’s case that are recited as part of the agreement, as well as the respondent’s consent to the use of any documents, testimony, or other evidence previously provided by it in a future enforcement action resulting from its violations.

The [https://www.zuckermanlaw.com/sp_faq/sec-whistleblower-program/ SEC Whistleblower Program] has issued more than [https://www.sec.gov/page/whistleblower-100million $1 billion in awards] to whistleblowers since 2012, which includes a '''multi-million dollar award to a client of Zuckerman Law.''' The [https://www.zuckermanlaw.com/sp_faq/largest-sec-whistleblower-awards/ largest SEC whistleblower awards] to date are $114 million, $110 million, and $50 million. [https://www.sec.gov/whistleblower/final-orders-of-the-commission The orders] announcing the awards, while sparse, offer critical guidance on how to: (1) recover an award; and (2) maximize the award percentage. These five lessons are drawn from those orders and our experience '''[https://www.zuckermanlaw.com/how-best-sec-whistleblower-law-firms-advocate-sec-whistleblowers/ effectively representing SEC whistleblowers.]'''

The [https://www.zuckermanlaw.com/sp_faq/sec-whistleblower-program/ SEC Whistleblower Program] has issued more than [https://www.sec.gov/page/whistleblower-100million $1 billion in awards] to whistleblowers since 2012, which includes a '''multi-million dollar award to a client of Zuckerman Law.''' The [https://www.zuckermanlaw.com/sp_faq/largest-sec-whistleblower-awards/ largest SEC whistleblower awards] to date are $114 million, $110 million, and $50 million. [https://www.sec.gov/whistleblower/final-orders-of-the-commission The orders] announcing the awards, while sparse, offer critical guidance on how to: (1) recover an award; and (2) maximize the award percentage. These five lessons are drawn from those orders and our experience '''[https://www.zuckermanlaw.com/how-best-sec-whistleblower-law-firms-advocate-sec-whistleblowers/ effectively representing SEC whistleblowers.]'''

Many SEC whistleblower attorneys will incorrectly begin the analysis of a claim by determining a whistleblower’s eligibility for an award. This puts the cart before the horse. The first step in any successful whistleblower claim is to determine whether you can establish a material violation of federal securities law. In other words, can you show the SEC that your tip concerns a violation that is serious enough to warrant the use of its limited resources?

Many SEC whistleblower attorneys will incorrectly begin the analysis of a claim by determining a whistleblower’s eligibility for an award. This puts the cart before the horse. The first step in any successful whistleblower claim is to determine whether you can establish a material violation of federal securities law. In other words, can you show the SEC that your tip concerns a violation that is serious enough to warrant the use of its limited resources?

If you have a hunch about a violation but lack any proof, then it may be worth investigating further, rather than submitting an incomplete or speculative claim to the SEC. Tips generally fall to the wayside unless they provide “specific” and “credible” information about a material violation of the federal securities laws. That said, if you have such information about a material violation, you will most likely want to submit your Form TCR as soon as possible (see Tip #3) unless you are required to take certain steps prior to submitting a tip in order to be eligible for an award.

If you have a hunch about a violation but lack any proof, then it may be worth investigating further, rather than submitting an incomplete or speculative claim to the SEC. Tips generally fall to the wayside unless they provide “specific” and “credible” information about a material violation of the federal securities laws. That said, if you have such information about a material violation, you will most likely want to submit your Form TCR as soon as possible (see Tip #3) unless you are required to take certain steps prior to submitting a tip in order to be eligible for an award.

The next step in any successful whistleblower claim is to determine eligibility. This step follows a finding of a material violation because, while most individuals cannot establish a material violation, almost everyone can become eligible for an award, if certain steps are taken. Lawyers, external and internal auditors, and even individuals involved in the wrongdoing are among those who may be eligible for awards.

The next step in any successful whistleblower claim is to determine eligibility. This step follows a finding of a material violation because, while most individuals cannot establish a material violation, almost everyone can become eligible for an award, if certain steps are taken. Lawyers, external and internal auditors, and even individuals involved in the wrongdoing are among those who may be eligible for awards.

Eligibility depends on various factors. If whistleblowers are uncertain about their eligibility, then they should consult with an experienced SEC whistleblower attorney. A skillful analysis may be the difference between a multimillion-dollar whistleblower award and no award at all.

Eligibility depends on various factors. If whistleblowers are uncertain about their eligibility, then they should consult with an experienced SEC whistleblower attorney. A skillful analysis may be the difference between a multimillion-dollar whistleblower award and no award at all.

It is never too early to think about maximizing your potential award. Whistleblowers may receive anywhere from 10% to 30% of the monetary sanctions collected in actions brought by the SEC and in related actions brought by other regulatory or law enforcement authorities. And the timing of a whistleblower’s tip is a significant factor that the SEC considers in determining whether, and how much, to award.

It is never too early to think about maximizing your potential award. Whistleblowers may receive anywhere from 10% to 30% of the monetary sanctions collected in actions brought by the SEC and in related actions brought by other regulatory or law enforcement authorities. And the timing of a whistleblower’s tip is a significant factor that the SEC considers in determining whether, and how much, to award.

Finally, to be eligible for an award, some whistleblowers must take certain actions (e.g., the 120-day exception for auditors under certain circumstances, see Tip #2) before reporting to the SEC. Whistleblowers should therefore understand and consider the specific eligibility requirements in determining when to report to the SEC.

Finally, to be eligible for an award, some whistleblowers must take certain actions (e.g., the 120-day exception for auditors under certain circumstances, see Tip #2) before reporting to the SEC. Whistleblowers should therefore understand and consider the specific eligibility requirements in determining when to report to the SEC.

Besides avoiding “unreasonable delay,” whistleblowers should be aware of other factors (see § 240.21F-6) that influence the size of awards. Whistleblowers must learn the rules early on because, as mentioned, some actions must be taken prior to filing with the SEC. For example, the whistleblower office may reduce the amount of an award if the whistleblower participated in the reported securities-law violation or interfered with the company’s internal compliance and reporting systems.

Besides avoiding “unreasonable delay,” whistleblowers should be aware of other factors (see § 240.21F-6) that influence the size of awards. Whistleblowers must learn the rules early on because, as mentioned, some actions must be taken prior to filing with the SEC. For example, the whistleblower office may reduce the amount of an award if the whistleblower participated in the reported securities-law violation or interfered with the company’s internal compliance and reporting systems.

Accordingly, whistleblowers have an incentive to report internally to their companies’ compliance personnel before going to the SEC. If whistleblowers choose to report internally, then '''they should also report the same information to the SEC within 120 days.''' That way, in evaluating a potential award, the SEC will consider the date of the internal report, rather than the date that the whistleblower reported to the SEC. As the SEC puts it, the whistleblower office will “hold your place in line.” This may determine, for example, whether a whistleblower submitted “original information.”

Accordingly, whistleblowers have an incentive to report internally to their companies’ compliance personnel before going to the SEC. If whistleblowers choose to report internally, then '''they should also report the same information to the SEC within 120 days.''' That way, in evaluating a potential award, the SEC will consider the date of the internal report, rather than the date that the whistleblower reported to the SEC. As the SEC puts it, the whistleblower office will “hold your place in line.” This may determine, for example, whether a whistleblower submitted “original information.”

The SEC Whistleblower Office is relatively small, and thousands of tips are submitted annually. According to the [https://www.sec.gov/files/2020%20Annual%20Report_0.pdf SEC’s Annual Report Congress on the Whistleblower Program], the office received 6,911 tips in fiscal year 2020. As such, SEC whistleblowers and their attorneys should tailor their tips to quickly grab the whistleblower office’s attention. While one could write a book on this section alone, here are a few “rules” to keep in mind when drafting submissions:

The SEC Whistleblower Office is relatively small, and thousands of tips are submitted annually. According to the [https://www.sec.gov/files/2020%20Annual%20Report_0.pdf SEC’s Annual Report Congress on the Whistleblower Program], the office received 6,911 tips in fiscal year 2020. As such, SEC whistleblowers and their attorneys should tailor their tips to quickly grab the whistleblower office’s attention. While one could write a book on this section alone, here are a few “rules” to keep in mind when drafting submissions:

#If possible, provide the whistleblower office with documentation of the violation. The SEC is much more likely to act on a tip that is supported by strong evidence. The SEC does not, however, want all types of evidence. For example, the SEC does not want information that may violate the company’s attorney-client privilege (e.g., documents, including emails, that involve advice from inside or outside counsel).

#If possible, provide the whistleblower office with documentation of the violation. The SEC is much more likely to act on a tip that is supported by strong evidence. The SEC does not, however, want all types of evidence. For example, the SEC does not want information that may violate the company’s attorney-client privilege (e.g., documents, including emails, that involve advice from inside or outside counsel).

Every case is unique and the outcome of a case depends upon variety of factors, but a prior performance problem is not an insurmountable obstacle to prevailing in a [https://www.zuckermanlaw.com/legal-services/whistleblower-retaliation-and-whistleblower-protection-lawyers/ whistleblower retaliation case]. A whistleblower can prevail in a retaliation case even if they had a performance problem or problems prior to blowing the whistle. To prevail in a retaliation case, a whistleblower must show that 1) they engaged in protected activity, 2) their employer took an adverse employment action against them, and 3) the protected activity was a contributing factor to the adverse employment action. See Arnett v. Hilmar Cheese Co., 2018-CPS-00002 at 3 (ALJ Sep. 11, 2018) (citing various whistleblower statutes).

Every case is unique and the outcome of a case depends upon variety of factors, but a prior performance problem is not an insurmountable obstacle to prevailing in a [https://www.zuckermanlaw.com/legal-services/whistleblower-retaliation-and-whistleblower-protection-lawyers/ whistleblower retaliation case]. A whistleblower can prevail in a retaliation case even if they had a performance problem or problems prior to blowing the whistle. To prevail in a retaliation case, a whistleblower must show that 1) they engaged in protected activity, 2) their employer took an adverse employment action against them, and 3) the protected activity was a contributing factor to the adverse employment action. See Arnett v. Hilmar Cheese Co., 2018-CPS-00002 at 3 (ALJ Sep. 11, 2018) (citing various whistleblower statutes).

This is known as the “conduct-and-effects” test. Courts have applied this test for over 40 years notwithstanding the fact that the federal securities acts of 1933 and 1934 did not address the extraterritorial reach of the antifraud provisions of those statutes. On June 24, 2010, the Supreme Court of the United States held in Morrison v. Nat’l Australia Bank Ltd. that the lower courts were wrong to apply the conduct-and-effects test. Then, less than a month after the Morrison decision, Congress enacted the Dodd-Frank Act, which amended the jurisdictional provisions of the federal securities acts to clearly indicate that the anti-fraud provisions apply extraterritorially when the statutory conduct-and-effects test is met.

This is known as the “conduct-and-effects” test. Courts have applied this test for over 40 years notwithstanding the fact that the federal securities acts of 1933 and 1934 did not address the extraterritorial reach of the antifraud provisions of those statutes. On June 24, 2010, the Supreme Court of the United States held in Morrison v. Nat’l Australia Bank Ltd. that the lower courts were wrong to apply the conduct-and-effects test. Then, less than a month after the Morrison decision, Congress enacted the Dodd-Frank Act, which amended the jurisdictional provisions of the federal securities acts to clearly indicate that the anti-fraud provisions apply extraterritorially when the statutory conduct-and-effects test is met.