With its largest ever whistleblower bounty, the Securities and Exchange Commission on Monday awarded $30 million to an informant whose tips led to a major enforcement action. The previous high for an SEC award to a whistleblower was $14 million, which was announced in October 2013.
The award is also notable because it is the fourth award to a whistleblower living in a foreign country. “This award of more than $30 million shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice,” Sean McKessy, chief of the SEC’s Office of the Whistleblower, said in a statement. “Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”
The SEC’s whistleblower program rewards “high-quality, original information” that results in an SEC enforcement action with sanctions exceeding $1 million. Awards can range from 10 percent to 30 percent of the money collected in a case. The money paid to whistleblowers comes from an investor protection fund established by Congress that is financed through monetary sanctions paid by securities law violators to the SEC. By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.
Because of the program’s anonymity protections, no details regarding the enforcement action that led to the reward were made public.
“Our client exposed extraordinarily deceitful and opportunistic practices that were deeply entrenched and well hidden,” Erika Kelton, an attorney with the law firm Phillips & Cohen and legal counsel to the whistleblower says. “Federal regulators never would have known about this fraud otherwise, and the scheme to cheat investors likely would have continued indefinitely.”
“I was very concerned that investors were being cheated out of millions of dollars and that the company was misleading them about its actions,” the whistleblower said in a statement issued through the firm. “Deception had become an accepted business practice.”
Without divulging specifics, the SEC suggested that the whistleblower’s initial delay in reporting the uncovered malfeasance limited the award that will be collected.
“We have considered Claimant’s delay in reporting the violations, which under the circumstances we find unreasonable,” the administrative order says. “The Claimant delayed coming to the Commission after first learning of the violations, during which time investors continued to suffer significant monetary injury that otherwise might have been avoided. We do not agree with Claimant’s assertion that the delay was reasonable under the circumstances because [he/she] was purportedly uncertain whether the Commission would in fact take action. There is always some measure of uncertainty about how a law- enforcement agency may respond to a tip, but in our view this does not excuse a lengthy reporting delay while investors continue to suffer losses.”
“Indeed, if the Claimant was concerned that the Commission would not respond to the tip, [he/she] also could have reported the violations to other appropriate U.S. authorities; yet Claimant did not do so and the explanations offered are not sufficient to mitigate a downward adjustment,” the SEC added.
A mitigating factor, however, was that some of the delay occurred before the SEC’s whistleblower award program was established by the Dodd-Frank Act. “Although Claimant has not raised any specific legal arguments against application of the unreasonable delay factor for that portion of the delay, we have determined in our discretion not to apply the unreasonable delay consideration as severely here as we otherwise might have done had the delay occurred entirely after the program’s creation,” the administrative order said.
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