SEC Whistleblower Program
The Securities and Exchange Commission (SEC) Whistleblower Program, administered by the agency’s Office of the Whistleblower, covers reports of alleged violations of federal securities law by publicly traded companies. The Program includes anti-retaliation protections for whistleblowers and significant rewards for tips that lead to sanctions against companies.
History of the Program
The SEC’s Whistleblower Reward Program was established in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act. While the agency had a bounty program in past decades, it was limited to insider trader violations and rarely used. Broader whistleblower provisions were first put in place in 2002, when the Sarbanes-Oxley Act (SOX) created anti-retaliation protections for whistleblowers reporting alleged securities, mail, and wire fraud.
Alongside these protections, Dodd-Frank created the current Whistleblower Program for reports that lead to successful enforcement actions. Administered by the SEC’s Office of the Whistleblower, the Program has awarded a total of over $1.9 billion to nearly 400 individuals since it began operation in 2011. In 2023, the Whistleblower Program received more than 18,000 tips, and paid out its highest-ever single award of $279 million.
Elements of an SEC Whistleblower Claim
The SEC Whistleblower Program covers reports of violations of federal securities law, including false or misleading statements about a publicly traded company (including assertions in SEC statements or financial statements), insider trading, theft or misappropriation of funds or securities, pyramid or Ponzi schemes, and bribery or improper payments to foreign officials.
For the purposes of the Program, a whistleblower is someone who voluntarily provides the agency with original information in writing about a violation of federal securities law that has happened, is ongoing, or is about to occur. Whistleblowers have original information when their tip is based on independent knowledge or analysis that comes from sources that are not publicly available (like news media or public disclosures). The agency considers information voluntary when the whistleblower has made the report on their own, before any inquiry or investigation has requested it.
Whistleblowers who submit information that leads to an enforcement action that results in sanctions of over $1 million can be eligible for an award of 10-30% of the penalties.
SEC Whistleblower Process
To be eligible for a whistleblower award, information about alleged violations must be reported through the agency’s Tips, Complaints and Referrals (TCR) process. Reports can be made anonymously, if a whistleblower is represented by an attorney. While tips cannot be made by a company or organization, they can be submitted by more than one person. The Whistleblower Program is also open to non-U.S. citizens, and reports can relate to conduct outside the U.S., if the violations impact the American securities market.
While most whistleblowers who submit a tip to the SEC have reported internally to their employer first, whether an internal report has been made generally has no impact on a whistleblower’s eligibility for the Program. There are some specific rules related to reporting for compliance personnel, and if you have any questions, it’s important to make sure you talk to an attorney to ensure you’re preserving your rights.
Once a tip is submitted, the SEC Enforcement Division makes an assessment and determines whether to open a new investigation or use the information in any ongoing investigations. Even where an investigation is already underway, a whistleblower tip may still be eligible for an award if it was provided outside of any inquiry or request, qualifies as original information, and substantially contributes to the inquiry.
Throughout the reporting and enforcement process, important anti-retaliation protections apply under both SOX and Dodd-Frank to ensure that whistleblowers are not punished for coming forward. Companies cannot demote, discharge, suspend, harass, or discriminate in any way against an employee who has reported conduct to the SEC that they reasonably believe is a violation of federal securities law. It is also illegal for any person to interfere with someone making a direct report of alleged wrongdoing to the agency. And employment agreements that purport to restrict employees from disclosing “proprietary information” to government agencies, or seek to “claw back” whistleblower rewards, are illegal and will be subject to fines by the SEC.
Unlawful retaliation is subject to separate legal claims and damage awards, independent of any violations of securities law.
Contact a Whistleblower Attorney
These descriptions of the SEC Whistleblower Program are general in nature and do not constitute legal advice. Financial regulation of publicly traded companies is complex and ever-evolving. The attorneys at Whistleblower Partners understand the complicated, constantly changing legal landscape and are happy to discuss any potential matter further.
If you would like more information or would like to speak to an attorney at Whistleblower Partners, please contact us for a confidential consultation.