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Securities Whistleblower Incentives and Protections

Securities Whistleblower Incentives and Protections

Since its inception in 2011, the SEC’s whistleblower program has paid more than $50 million to 16 whistleblowers.

In a series of corporate scandals that that defrauded countless investors and injected credibility issues into the securities markets, in 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

What is the "Dodd-Frank Law"?

One of the main sections of the Dodd-Frank law was to create a whistleblower program entitled Securities Whistleblower Incentives and Protections.

This new section requires the Securities and Exchange Commission (“SEC”) to pay financial rewards to individuals to provide information about possible securities violations to the SEC.

The purpose behind creating this private-police power is that the authorities cannot be everywhere at once policing the marketplace and further, securities fraud schemes are often very difficult to detect without some inside information to at least initiate the investigatory process.

In order for a whistleblower to ultimately be successful, the tip(s) provided to the SEC must lead to an enforcement action resulting in sanctions greater than $1M.

An Additional Anti-Retaliation Provision

One of the things that Dodd-Frank did was add in an anti-retaliation provision that protects whistleblowers from retaliation for blowing the whistle and allows a private right of action.

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Further, should an SEC whistleblower be fearful of retaliation in the first place, a whistleblower is now able to file an SEC whistleblower claim anonymously through an attorney.

Whistleblower Awards

Most recently, the SEC awarded more than a million dollars to a compliance professional who provided information that assisted the SEC in an enforcement action against the whistleblower’s company.

The compliance officer in this case had a reasonable basis to believe that disclosure to the SEC was necessary “to prevent imminent misconduct from causing substantial financial harm to the company or investors”.

“When investors or the market could suffer substantial financial harm, our rules permit compliance officers to receive an award for reporting misconduct to the SEC,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.

“This compliance officer reported misconduct after responsible management at the entity became aware of potentially impending harm to investors and failed to take steps to prevent it.”

Benefits of Being a Whistleblower

The whistleblower in this matter will receive between $1.4 million and $1.6 million.

Whistleblower awards can range from 10 percent to 30 percent of the money collected in a successful enforcement action with sanctions exceeding $1 million, as noted above.

By law, when claims are filed anonymously, the SEC must protect the confidentiality of whistleblowers and cannot disclose information that might directly or indirectly reveal their identities.

Since its inception in 2011, the SEC’s whistleblower program has paid more than $50 million to 16 whistleblowers who provided the SEC with unique and useful information that contributed to a successful enforcement action.