The SEC awarded over $500,000 to a whistleblower for providing original information that led to a successful enforcement and aided in stopping an ongoing fraudulent scheme.
According to the SEC Order, the whistleblower reported alleged misconduct internally to his employer first, and then within 120 days reported the same information to the SEC, thereby satisfying the safe-harbor provision of SEA Rule 21F-4(b)(7). Under that provision, the SEC treats the whistleblower's information as though it had been submitted to the SEC at the same time it was internally reported, as long as the whistleblower reports the information to the SEC within the 120-day window.
Commentary Lex Urban
In this instance, the company's internal reporting mechanism for suspected misconduct worked exactly as it should. The whistleblower first reported the potential misconduct internally and the company expeditiously conducted an internal investigation. After the company's internal investigation, it self-disclosed misconduct to an external agency (who provided the information to the SEC), which assisted them in stopping an ongoing fraudulent scheme. In turn, the company likely received a reduced penalty for proactively reporting the misconduct and preventing additional harm. This highlights the importance of having appropriate reporting and investigating mechanisms in place to address whistleblower complaints and give companies the chance to get ahead of these issues and consider strategic decisions, such as self-reporting.
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