An introduction to the SEC’s whistleblower program

Category: Qui Tam, Whistleblower & False Claims

In 2010, the Dodd-Frank Act established a new whistleblower program run by the Securities and Exchange Commission, or SEC, to help quickly identify SEC violations, including fraud. It is important that those in the finance industry understand how the program works, including the protection from retaliation the program grants to whistleblowing employees.

The SEC whistleblower program

In August 2012, the SEC issued its first award to a whistleblower who gave the SEC documents and other information that led to sanctions for fraud. The recipient of the August award was given $50,000, representing 20 percent of the value of the sanctions, the highest award payout allowed in the whistleblower program.

The SEC’s whistleblower program awards individuals who give the agency original information that leads to a successful SEC investigation and sanctions against a company of $1 million or more. Awards may be anywhere between ten and 30 percent of the total amount collected from sanctions. Since its inception in 2010, the SEC whistleblower program receives an average of eight tips a day regarding information about firms that may be violating the SEC’s securities laws.

In addition to providing awards to whistleblowers, the program also gives these individuals protection from retaliation by their companies. It also provides identity protection. Whistleblowers must be individuals – not companies – but do not need to work at the firm about which they are providing information. An employee can be considered a whistleblower if he or she reports a violation to his or her company, which then reports the violation to the SEC. In this case, an employee has 120 days to report personally to the SEC as a whistleblower.

How the SEC whistleblower program affects businesses

The SEC whistleblower program has implications for businesses in the finance industry. The largest effect the program has is on the actions a company can take against an employee who blows the whistle. The whistleblower program prohibits employers from discriminating against an employee who tips off the SEC to securities violations at the company. Discrimination can include firing, suspending, demoting or in any other way harassing an employee.

If employees feel that they have been discriminated against for whistleblowing, they are able to pursue civil action against their employers. If the employee is able to prove discrimination, they may be entitled to double back pay, reinstatement if they were dismissed and reimbursement of court and attorney’s fees.

Another important note is that the award paid to a whistleblower decreases when the whistleblower was involved in the violations he or she reported. For example, if the whistleblower helped perpetrate securities fraud, then reported the scheme, he or she will receive a reduced award.

If you believe an employee may tip off the SEC for alleged securities violations at your company or would like help ensuring that your company complies with all applicable rules, contact a lawyer with experience in the area of securities law.

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