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SEC Whistleblower Program

Financial Fraud

Securities & Exchange Commission (SEC)

The SEC is the agency charged with enforcing federal securities laws; it has jurisdiction over any fraud or wrongdoing within the reach of those laws. The Commission investigates and sanctions:

  • Deceptive investment practices, such as Ponzi or pyramid schemes, fraudulent securities offerings, or false or misleading statements about a company in SEC filings or financial statements;
  • Improper trading behavior, including insider trading, manipulation of security prices or volumes, or abusive short selling;
  • Other fraudulent or unlawful conduct related to securities, including theft or misappropriation of securities, improper payments to foreign officials, or fraud associated with cryptocurrency transactions; and
  • Any other fraudulent conduct involving securities (stocks or bonds)

The SEC’s Whistleblower Program is one of the most successful federal tip programs. Since its creation in 2010 by section 922 of the Dodd-Frank Act, the program has awarded hundreds of millions of dollars to individual whistleblowers. It incentivizes reporting of securities law violations by providing an award for tips that result in significant enforcement actions (defined as those resulting in at least $1 million in sanctions). Those who provide information are also protected from retaliation by the Sarbanes-Oxley Act.

A set of amendments to the rules, adopted in September 2020, strengthened and clarified the program’s rules and the protections it offers.

How do I report a tip to the SEC?

To qualify for an award, you must submit information in one of two ways:

  1. By submitting the tip through the SEC’s Tips, Complaints and Referrals system at www.sec.gov/tcr. This route, which the agency refers to as the “TCR system,” is the preferred method, and it is the only method that provides written confirmation that the submission has been received. If you wish to be eligible for an award, or for the additional confidentiality protections provided by the whistleblower program, you must respond “yes” to “Are you filing this tip under the SEC’s whistleblower program?” in the About You section of the submission process.
  2. By mailing or faxing a Form TCR to the SEC at the address below. Form TCR can be downloaded from https://www.sec.gov/about/forms/formtcr.pdf. The fully completed form should be sent to:

14420 Albermarle Point Place
Suite 102
Chantilly, VA 20151-1750
ATTN: SEC TCR SUBMISSIONS
Fax: (703) 813-9322

You are not required to have an attorney to participate in the SEC’s Whistleblower Program unless you wish to submit your tip anonymously. Anonymous tips are eligible for awards, but only if the anonymous whistleblower is represented by an attorney who provides the required information on the Form TCR or in the online TCR system.

What determines whether I get an award?

To get an award, you must be eligible and you must submit a claim for an award. You must be eligible. Eligibility is determined by the nature of the information you provide and by the enforcement actions it produces. You and your information must meet several requirements.

First, you must be an individual. While awards may be paid to multiple whistleblowers for a single action, they may not be paid to companies or other entities.

Second, you must voluntarily provide original information about a past, ongoing, or imminent violation of securities laws enforced by the SEC.

  • You must provide the information voluntarily, not in response to (or even after receiving) a request or demand from the SEC or any other authority.
  • The information must be original, based on your own knowledge or independent analysis. if someone else has already reported the information, you will not be eligible for an award unless you were the original source of it. Any analysis based on publicly available materials must apply technical expertise to reveal insight into potential violations that are not evident on the face of the materials.

Third, the information must lead to a successful SEC action.

  • A tip leads to an SEC action if it causes the agency to open a new investigation, reopen a closed investigation, or develop a new line of inquiry in an ongoing investigation.
  • The action is successful if it identifies violations and results in sanctions being assessed.

Fourth, you must provide the information “in the form and manner specified by the rules.” In other words, you must submit your tip via the TCR System or using Form TCR, as described above. If you submit a paper Form TCR by mail or fax, the form must be submitted within 30 days after you provide the information to the Commission.

Finally, awards are only paid if the investigation of the tip results in monetary sanctions of at least $1 million.

  • Eligible sanctions include penalties, disgorgement of fraudulently acquired gains, and interest, as well as amounts paid in settlement of an investigation, restitution, and any other amounts intended as relief for the fraudulent activity.
  • Recoveries in bankruptcy are not included.
  • Where a whistleblower participated in or directed the reported activity, sanctions resulting from the whistleblower’s activity will not be included in the calculation to determine whether the $1 million threshold has been reached. Excluded amounts would include sanctions assessed directly against the whistleblower and sanctions assessed against any entity whose liability is a result of conduct the whistleblower directed or initiated.

You must submit a claim.

Once you submit your tip, you must wait for the Commission to investigate and assess sanctions. The SEC posts notices regarding cases that may be eligible for whistleblower awards on its website.

Once a Notice of Covered Action is posted, any applications for award must be made within 90 calendar days. You can sign up to receive alerts when new notices are posted on the Office of the Whistleblower website. If you have been working with SEC staff during the investigation, they may alert you to a notice, but it is your responsibility to monitor this website and submit a timely application once a judgment is entered.

An application must be made using the SEC’s Form WB-APP, available on the website. The Commission prefers that the forms be faxed to (703)813-9322, but they may also be mailed. Check the website for the mailing address, as it is subject to change.

Note that by posting a notice, the SEC does not promise that anyone is eligible for an award. Once you submit your application, staff will review it and determine whether you are eligible for an award. If sanctions have been assessed but not collected, the Commission may defer your application until sanctions are collected.

How much will my award be?

Your award will be based on the amount of any sanctions the SEC collectsnot sanctions assessed—after it investigates your tip. The SEC pays whistleblowers between 10% and 30% of any sanctions paid by wrongdoers. The ultimate amount is determined by the size of the sanction assessed, the level of assistance provided by the whistleblower, and any “negative factors.”

Negative factors have to do with the whistleblower’s behavior. They include whistleblower participation or culpability in the fraud reported, unreasonable delay in reporting the unlawful activity, or whistleblower interference with internal compliance processes. This last applies when the whistleblower interferes with a company’s attempts to investigate or conceals the violation from internal investigators

If the sanction assessed is less than $5 million, the award is presumed to be the statutory maximum—30%. That amount may be reduced if the whistleblower provided only minimal assistance to the investigation, paying 30% would be contrary to the SEC’s investor protection goals, or any negative factors are present.

If the sanction assessed is more than $ 5 million, the SEC engages in a factor-based analysis to determine the ultimate amount of the award. In this analysis, the ultimate award is determined by a weighing of two sets of factors:

  1. Factors that may increase an award:
  • The information provided by the whistleblower is significant to the success of the SEC’s action.
  • The whistleblower provided some level of ongoing assistance to the investigation, including helping to interpret or explain information and encouraging others to cooperate.
  • The whistleblower experienced some unique hardships as a result of the tip or of assisting in the investigation.The whistleblower participated in internal compliance systems, reporting the violation to the company’s internal compliance authorities before or simultaneously with submitting the tip to the SEC.
  • An award will support the SEC’s goals, by enhancing the agency’s ability to enforce laws, deterring violations, or encouraging other whistleblowers to come forward

2. Factors that may increase an award:

  • The whistleblower is to some degree culpable in the activity reported or benefitted financially from it
  • The whistleblower unreasonably delayed reporting the violations or only reported after learning of a related investigation, and no legitimate reason for the delay has been offered.
  • The whistleblower interfered with any internal compliance systems in an effort to hinder the company’s ability to detect and correct the reported violations

If you are found to be eligible for an award from the SEC and your tip also results in action by other agencies, you may also be eligible for a similar percentage of any sanctions assessed by those other agencies. However, you will only be eligible for a “related action” award if the other agency’s action has a clear, explicit, and direct connection to the conduct sanctioned by the SEC and to your information.

What protection do I have from retaliatory action?

First, any action to impede or interfere with someone reporting illegal activity to the SEC is itself illegal and can be reported to the SEC’s whistleblower line, regardless of the relationship between the reporter and the target of the party interfering.

If you are reporting information about your employer, you have more extensive protections from retaliation. Under federal law, your employer may not retaliate against you in any way for providing information to the SEC or assisting in an investigation based on your tip. Retaliation may include firing, demoting, or suspending you or harassing or discriminating against you at work.

Retaliatory activity may itself be a violation of securities laws and can be reported to the SEC. Individuals who believe they have been the victim of retaliation have two avenues of direct recourse, one under the Dodd-Frank Act and one under the older Sarbanes-Oxley Act.

Dodd-Frank Protections

The Dodd-Frank Act allows you to file a civil lawsuit against your employer for illegal retaliation. To win such a suit, you must be able to show that (1) you engaged in legally protected behavior (that is, you reported activity you believed to be illegal to the SEC or you participated in an SEC investigation), (2) your employer took negative action against you, either directly (by firing or demoting you) or indirectly (by harassing you or making it impossible for you to do your job), and (3) the negative action was directly related to your interaction with the SEC.

A recent Supreme Court ruling has held that these protections are only available retrospectively. You cannot sue your employer for harassment that occurs before you actually engage with the SEC. You must sue either within six years of the violation or within three years after you find out about the violation.

If you win your lawsuit, you may be awarded reinstatement, double back pay, and reimbursement for attorney’s fees and other litigation costs.

Sarbanes-Oxley Protections

Under the 2002 Sarbanes-Oxley Act, the Department of Labor’s Occupational Health and Safety Administration (OSHA) is charged with protecting whistleblowers from retaliation. You can find more information about OSHA’s whistleblower protection program at www.whistleblowers.gov.

You must submit your complaint within 180 days of the adverse action. You can submit a complaint regarding illegal retaliation in a number of ways. OSHA accepts reports online, via the form at https://www.osha.gov/whistleblower/WBComplaint.html; by fax, mail, or email; or by telephone or in-person at a regional or area OSHA office. You should be prepared to provide any documentation you have as well as copies of recent pay stubs and any other information demonstrating the retaliation.

OSHA will investigate and, if the evidence supports your claim of retaliation, the agency will require the employer to reinstate you, pay back pay and benefits, and any other relief that the agency determines is appropriate.

 

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