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On August 21, 2012, the Securities and Exchange Commission
announced the first award under its one-year old whistleblower
program, through which tipsters can receive monetary awards for
providing the SEC with assistance and information concerning
possible securities fraud. The SEC revealed that an anonymous
whistleblower will receive approximately $50,000 for providing the
SEC with information used to stop a multimillion-dollar fraud. The
SEC's first award was anxiously anticipated because of
expectations that it would reveal insights, both to future
whistleblowers and the companies who may be subject of a report,
about the SEC's controversial program. But, to protect the
identity of the whistleblower, the SEC issued a bare-bones
announcement on its first award that provided little information
about the whistleblower, the fraud, or bigger questions about what
can be expected from the program going forward.
The SEC created its whistleblower program as required by the
2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
Under the SEC's program, it can pay awards to individuals who
provide information about possible securities fraud if that
information leads to an SEC judicial or administrative action
resulting in monetary sanctions exceeding $1,000,000; the
information is provided voluntarily; and the information is
original, meaning derived from the independent knowledge or
analysis of the whistleblower and not already known to the SEC.
Awards can range between 10 and 30 percent of the amount collected,
with the SEC having discretion on the amount. Sean McKessy, who
heads the SEC's whistleblower program, reports that the SEC is
receiving an average of eight tips a day of potential securities
fraud. The SEC is required to maintain the confidentiality of the
whistleblower to encourage tips and protect against
retaliation.
In announcing the first award, the SEC gave few details and did
not reveal the company involved, the type of fraud that was
involved, or the type of information revealed or assistance
provided by the whistleblower. Instead, the SEC only stated that
the whistleblower's assistance helped uncover "the full
dimensions" of an unspecified scheme. The SEC's
announcement did show that the whistleblower was awarded the
maximum amount authorized under the statute – 30 percent
of the amount collected, which at the time of the announcement was
$150,000, and that the whistleblower may receive additional payment
if there is additional collection of the more than $1 million
court-ordered sanctions. Notably, a second claimant was denied an
award, but there is no discussion of why one tipster received an
award while the other did not.
Many observers expected that the SEC would use the first award
under the whistleblower program to set forth a paradigm for who is
an ideal whistleblower and what information and assistance is
expected from tipsters to receive an award. If that was the
SEC's original intent, it seems likely that an inadvertent
disclosure this April of the identity of a whistleblower during an
investigation led to the SEC's decision to provide such limited
information in this announcement. Whatever the reason, it appears
that for the foreseeable future the SEC will be taking strong
measures to protect the confidentiality of
whistleblowers—perhaps much stronger measures than those
required by Dodd-Frank—which will limit disclosure of the
SEC's decision-making process on whistleblower awards.
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