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$2 Million SEC Whistleblower Award To Be Split Among Three Whistleblowers — But The First To The Commission Gets The Most

Posted  March 10, 2016

The SEC has announced that its most recent whistleblower award, of almost $2 million, will be split among three whistleblowers — but not evenly.  The first whistleblower, identified only as “Claimant 1,” will receive about $1.8 million.  The other two whistleblowers will share about $130,000.

The SEC whistleblower program was inspired by, and roughly based on, The False Claims Act (FCA), oft-described as “the federal government’s most powerful anti-fraud tool.”  But the SEC made some interesting tweaks to the FCA’s structure.  For instance, to incentivize the prompt reporting of fraud, the FCA includes what is colloquially known as “the first-to-file bar.”  In general terms, this “bar” provides that the first person to file a lawsuit alleging the fraud on which a recovery is made, is the only one entitled to collect a reward.

The SEC has adopted a slightly different approach.  It will pay awards to “one or more whistleblowers” who provide the Commission with information “that leads to” a successful enforcement action in which the Commission obtains monetary sanctions of more than $1 million.  17 C.F.R. § 240.21F-4(c).  Information that “leads to” a successful enforcement action is defined as information that is “sufficiently specific, credible, and timely to cause the[Commission] staff to commence an examination, open an investigation, reopen an investigation that the Commission had closed, or to inquire concerning different conduct as part of a current examination or investigation” or information about conduct that was “already under examination” but which “significantly contributed to the success of the action.”  As a result, whistleblowers who provide information to the Commission about conduct which the Commission is already aware of, may still be entitled to an award.

To protect whistleblower confidentiality, the SEC releases little information about its awards.  As a result, it is impossible to know what information or assistance Claimants 2 and 3 offered to earn their portion of this award.  However, the SEC’s decision to move towards a more holistic method of evaluating whistleblower contributions seems likely to have played a significant part in their recovery here.

The SEC’s approach is a “win” all around.  The fact that Claimants 2 and 3 received a portion of the award indicates that they provided information that the Commission would not otherwise have had and which moved its action forward, and they were rewarded for their contributions.  At the same time, Claimant 1, whose information “caused the investigative staff to open the investigation” approximately 18 months before Claimants 2 and 3 had even submitted their information, and who met with Commission staff and provided “useful information on several occasions” will take the bulk of the award.

As we learn in kindergarten, “the early bird gets the worm.”  So, too, the early whistleblower.  But, at least with the SEC, the late risers can get in on the action too.

Tagged in: Anonymity, Multiple Whistleblowers and First-to-File, SEC Whistleblower Reward Program, Securities Fraud, Whistleblower Case, Whistleblower Rewards,