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SEC Whistleblower Program
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In 2010, after a series of corporate scandals had shuttered companies and devastated countless individual investors, the country debated how to break the cycle of fraud and corruption. Financial watchdogs agreed on two fundamental truths: the investor protection status quo was failing and law enforcement could not effectively and efficiently police the marketplace without the help of individuals with actionable intelligence.
In response, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, one of the most sweeping financial reforms since the Great Depression. Under the statute, the SEC developed a revolutionary bounty program through which eligible whistleblowers receive significant monetary awards, employment protections, and have the ability to report anonymously.
The SEC receives thousands of whistleblower tips each year and many are denied outright because the submissions fail to meet the eligibility requirements of the program. It really is mission critical to understand the eligibility provisions and their nuances.
For the most part, qualifications are pretty straightforward. Any individual or group of individuals, regardless of citizenship, can participate in the program, potentially earning significant SEC whistleblower awards. It doesn’t matter whether a whistleblower is a corporate insider or outsider.
Key Eligibility Factors:
SEC whistleblowers may learn about wrongdoing through their business relationships or social interactions. This information can be derived from whistleblowers’ independent knowledge or their independent analysis of publicly available information. While being an eyewitness or having evidence of a securities violation is ideal, it is not required.
Pretty much anyone.
While most of our clients are in senior roles at financial firms and public companies, this is certainly not a requirement. Does a whistleblower need to be an employee of the company engaged in securities fraud? Absolutely not. As we addressed in an article on ZeroHedge, “Even Bartenders and Personal Trainers Can Receive Whistleblower Awards From The SEC.”
Gatekeepers, attorneys, accountants, internal compliance and risk executives, even culpable individuals can participate in the SEC whistleblower program. In many cases, these insiders may have high level information on wrongdoing that is causing serious harm to investors. While certain individuals, employees and outside contractors may be excluded from participation, of course, there are exceptions.
For instance, a generally ineligible whistleblower may be eligible to participate in the program if the individual reported internally and the company failed to appropriately address the problem after 120 days; if the misconduct the whistleblower reports is so significant that it would cause serious harm to the company or investors; or if the whistleblower is aware that the company is interfering with an internal or government investigation.
Helping gatekeepers and other whistleblowers can be tricky. We know this because we represented the first corporate officer to receive an SEC whistleblower award. In these and other complex areas of eligibility, such as when a whistleblower has potential culpability, it is always a good idea to consult with a whistleblower attorney.
Remember, by design, the SEC whistleblower program deputizes virtually every company employee, outside vendor, customer and citizen to serve as the Commission’s eyes and ears.
To help potential whistleblowers understand the gating principles surrounding their ability to participate in the program, we’ve created a confidential and personalized eligibility calculator. Individuals may find this is a comfortable way to learn more about the program without having to provide potentially identifying information. As this tool is illustrative and every case is unique, it’s a good idea to consult with a lawyer for a definitive understanding of eligibility.