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SEC Reaffirms its Policy of Reduced Awards for Tardy Whistleblowers

Posted  September 20, 2018

Last Friday, the SEC announced an award of more than $1.5 million to a whistleblower who “provided the SEC with vital information and ongoing assistance that proved important to the overall success of an enforcement action.” SEC Press Release. This brings to 58 the total number of awards under the SEC Whistleblower Program, amounting to $322 million in whistleblower recoveries. Of course, following the SEC’s strict whistleblower confidentiality provisions, the SEC neither identified the successful whistleblower nor the company he or she targeted.

However, the SEC made a point of highlighting that the whistleblower received a significantly reduced award because he or she delayed in reporting the misconduct and financially benefited from the delay. In its Order confirming the award, the SEC pointed to several key factors behind its decision:

  • The whistleblower waited for more than a year after learning of the facts underlying the violation before reporting it to the SEC.
  • The whistleblower reported to the SEC only after learning of the ongoing SEC investigation
  • During the period of the whistleblower’s delay, investors were being harmed.
  • As a result of the delay, the monetary sanctions upon which the whistleblower’s award is based increased so the whistleblower “received a significant and direct financial benefit” from the delay.

The SEC Order did not mince words in cautioning that future whistleblowers engaging in “similar conduct should expect to receive a severely reduced award-indeed, even one as low as the minimum statutory threshold.” And to hammer home the point, SEC Whistleblower Chief Jane Norberg stressed that the reduced award “reflects the value of the information while underscoring the need for individuals to come forward without delay so that our enforcement staff may quickly leverage the information and prevent further investor harm.” This is especially so, she added, when the whistleblower receives a financial benefit from the delay in reporting.

This is not the first time the SEC has penalized a whistleblower with a reduced award for what the agency considered an undue delay in reporting. This, despite all the legitimate reasons that may exist for whistleblowers to wait before stepping up, as outlined in a Government Accountability Project (GAP) report on the subject of whistleblower delay. This might include fear of retaliation, fear that reporting would be futile, or simply a desire to confirm the suspected misconduct. Perhaps the SEC has taken these legitimate concerns to heart with its focus in this latest award on the financial benefit the tardy whistleblower received from his or her delay rather than just the delay itself.

Whatever might be behind the SEC’s clear push to make whistleblowers act promptly, would-be SEC whistleblowers should take notice. The financial ramifications of any delay could be sizable given the agency’s discretion to award successful whistleblowers between 10 and 30 percent of any government recovery. Just another consideration to add to the already fraught and weighty dynamic of what it means to be a whistleblower.

Please contact us if you would like to speak to a member of the Constantine Cannon whistleblower lawyer team to learn more about the process under the SEC or other Whistleblower Programs and whether becoming a whistleblower would be the right thing for you.

Tagged in: Reporting to Government, SEC Whistleblower Reward Program, Statute of Limitations, Whistleblower Rewards,