SEC Awards $3.5 Million to Whistleblower for Strengthening Ongoing Investigation

Jordan Thomas -

Last Friday, the SEC announced it had granted a $3.5 million whistleblower award to an individual who provided additional information that supported an ongoing SEC investigation. The award, one of the largest granted to a single whistleblower in 2016, involves a unique set of circumstances and highlights the potential impact of whistleblowers who come forward with information, even when an investigation is already underway.

According to a final order released on Friday, the whistleblower’s award application was initially denied in January. The whistleblower had submitted a tip through counsel, but the application was denied because the information did not lead to the initiation of an investigation or cause the SEC to inquire into new conduct. However, the whistleblower appealed under a rule which states that whistleblowers may receive a reward if the information “significantly contributes” to the success of an investigation. Upon reconsideration, the SEC determined that the whistleblower did meet this criteria.

In fact, according to Andrew Ceresney, Director of the SEC’s Enforcement Division, “Whistleblowers can receive an award not only when their tip initiates an investigation, but also when they provide new information or documentation that advances an existing inquiry. This particular whistleblower’s tip substantially strengthened our ongoing case and increased our leverage during settlement negotiations with the company.” The SEC also stated that it considered “certain unique hardships experienced” by the whistleblower, such as being “unable to find employment since reporting the misconduct.” The final order was redacted to protect the whistleblower’s identity.

This award highlights a number of important issues for whistleblowers. First, it demonstrates the challenge and complexity of filing a successful whistleblower claim. In addition to complicated legal and procedural issues, individuals must manage numerous personal and professional risks. By filing with counsel, this whistleblower was able to maintain anonymity and ultimately articulate a successful argument for an award through the appeals process. This award also demonstrates that the SEC takes retaliation seriously. In considering the whistleblower’s difficulties in finding new employment, the SEC not only weighed the retaliation the whistleblower faced from his/her company, but also blacklisting from the greater financial services industry.

And while the whistleblower process is complex, this case also illustrates a simple, but critical point: never underestimate the value of actionable intelligence, especially from insiders. During my long tenure at the SEC, I witnessed first-hand the powerful impact that seemingly simple intelligence from insiders could have on a case. In issuing this award for providing supporting information, the SEC has empowered individuals to come forward – even in ongoing investigations – and has demonstrated the huge financial benefits of doing so.