SEC Issues First Whistleblower Program Award

A whistleblower who helped the Securities and Exchange Commission stop a multi-million dollar fraud will receive nearly $50,000 — the first payout from a new SEC program to reward people who provide evidence of securities fraud.

'The whistleblower program is already becoming a success', said SEC Chairman Mary L. Schapiro, who advocated for the program. 'We’re seeing high-quality tips that are saving our investigators substantial time and resources'.

The award recipient, who does not wish to be identified, provided documents and other significant information that allowed the SEC’s investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims. The whistleblower’s assistance led to a court ordering more than $1m in sanctions, of which approximately $150,000 has been collected thus far. The court is considering whether to issue a final judgment against other defendants in the matter. Any increase in the sanctions ordered and collected will increase payments to the whistleblower.

'This whistleblower provided the exact kind of information and cooperation we were hoping the whistleblower program would attract', said Robert Khuzami, Director of the SEC’s Division of Enforcement. 'Had this whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized'.

The SEC did not approve a claim from a second individual seeking an award in this matter because the information provided did not lead to or significantly contribute to the SEC’s enforcement action, as required for an award.

The 2010 Dodd-Frank Act authorized the whistleblower program to reward individuals who offer high-quality original information that leads to an SEC enforcement action in which more than $1m in sanctions is ordered. Awards can range from 10% to 30% of the money collected. The Dodd-Frank Act included enhanced anti-retaliation employment protections for whistleblowers and provisions to protect their identity. The law specifies that the SEC cannot disclose any information, including information the whistleblower provided to the SEC, which could reasonably be expected to directly or indirectly reveal a whistleblower’s identity.

Sean McKessy, Chief of the SEC’s Whistleblower Office, said that since the program was established in August 2011, about eight tips a day are flowing into the SEC. 'The fact that we made the first payment after just one year of operation shows that we are open for business and ready to pay people who bring us good, timely information'.