- May 20, 2014
- Labaton Sucharow
One of the questions we’re frequently asked by clients and prospective clients is “what happens to a whistleblower tip once it’s submitted to the SEC, and how does the SEC determine which tips to actively investigate?” These are crucial questions for any potential whistleblower, especially given that the SEC receives approximately 30,000 tips, complaints and referral each year – 3,200 of which were whistleblower tips in 2013 – but can only conduct about 700 active enforcement investigations each year.
The SEC’s process for vetting and investigating tips starts when a whistleblower submits to the SEC a Form TCR – short for “Tips, Complaints and Referrals” – describing the securities violation(s) that he or she believes has occurred. (As we’ve noted in previous posts, it’s crucial for any SEC whistleblower to submit his or her information using the Form TCR in order to remain eligible for a potential monetary award). Once the TCR is received by the SEC’s Office of the Whistleblower or “OWB,” the OWB will assign the submission a unique TCR number and send that number back to the whistleblower or the whistleblower’s attorney for record-keeping and tracking purposes.
At that point, the TCR is forwarded to the SEC’s Office of Market Intelligence or “OMI,” which has been described as a “point guard” for the entire agency. Comprised of more than 40 attorneys, former traders, accountants and other experts, the OMI is responsible for gathering and analyzing all tips and complaints received by the SEC. The OMI conducts an initial evaluation of each tip to determine, among other things, whether it relates to an existing investigation, whether similar information has already been submitted to the agency, and whether it relates to possible misconduct that occurred within the SEC’s five-year statute of limitations for enforcement actions. Most importantly, the OMI determines whether the tip is sufficiently specific, significant and credible to referred to the Division of Enforcement – the division responsible for conducting comprehensive investigations of possible securities violations and bringing claims against defendants where warranted.
If a tip is referred to the Division of Enforcement, it’s then up to enforcement attorneys to determine whether, and how best, to further investigate the tip. In some instances, the enforcement attorneys may determine that the tip should not be pursued, either because it appears unlikely that an actionable securities violation occurred or for some other reason. In some cases, the Division may determine that the tip should be referred to a different government agency, such as the CFTC, IRS or Department of the Treasury. In many cases, though, the tip will be used as a valuable new lead in an existing SEC investigation or as the starting point for an entirely new SEC investigation.
As the pathway traveled by a tip reflects, the SEC cannot launch a full-blown investigation into every new allegation, and instead must make difficult but necessary decisions about how best to allocate its resources. For that reason, it’s vital that any SEC whistleblower (whether using counsel or not) provide information to the SEC in clear, compelling, detailed and organized way, explaining exactly why he or she believes a securities violation has occurred and providing any supporting evidence. This type of tip is much more likely to catch the SEC’s interest than a vague or conclusory tip, giving both the SEC and the whistleblower a better chance at achieving a successful outcome.