$50M SEC Whistleblower Award

The Securities and Exchange Commission handed out two big whistleblower awards Tuesday that sent an unmistakable message to the employee whistleblowers about whom compliance officers worry so much: if you want a crack at that award, report to the agency promptly, and bring all the information you can.

The headline is that the SEC spilt $50 million between two whistleblowers whose information led to two separate investigations into the same firm. Claimant 1 received an award of $13 million, and Claimant 2 received an award of $37 million. The second claimant’s award is the third-largest ever given by the SEC, according to a slick graphic the SEC now seems to be appending to whistleblower award press releases.

Claimant 1 apparently started the hit parade when his lawyer approached the SEC to announce that a whistleblower tip would be arriving presently. SEC staff opened an investigation that day, and as promised Claimant 1 submitted a rather detailed tip a few days later. (As usual with SEC whistleblower awards, we don’t have specific details on the company, the offense, or what the company’s monetary penalty was.)

whistleblower awardClaimant 2 arrived on scene sometime later, providing a much more specific, detailed tip about the same company, but relating to a second instance of misconduct. The SEC then opened a second investigation into the company.

Exactly what did Claimant 2 provide, to deserve an award nearly three times larger than Claimant 1’s award? Again, we don’t know. But the SEC did say Claimant 2 met with SEC staff numerous times, and provided “information and documentation that were of a significantly high quality and critically important… The documents Claimant #2 provided staff were akin to “smoking gun” evidence.”

Moreover, Claimant 1 “unreasonably delayed” in bringing his allegations to the SEC. And while Claimant 1 dawdled, investors were suffering more harm — which ultimately led to more disgorgement from the company when it settled with the SEC, and that disgorgement amount is how the SEC calculates a whistleblower award.

So, essentially, Claimant 1 stood to gain financially by taking his time reporting the misconduct. The SEC gave a smaller award to discourage such slow-rolling.

One footnote: Claimant 2 was also working with a second government agency to blow the whistle on his employer. The SEC doesn’t say which one, but Claimant 2 did win an award from that second agency too, so the SEC adjusted its award downward rather than encourage future whistleblowers to start double-dipping.

Enter Claimant 4

On the sidelines is Claimant 4, who did not receive an award, even though he provided a tip about the same company three days before Claimant 1 first approached the SEC. The SEC award order discusses Claimant 4 at some length, so we should give him some attention too.

Claimant 4’s lawyer first approached a regional SEC office with a tip about misconduct at the company. Claimant 4’s tip did lead the SEC to open an investigation into the company, which did result in a settlement, and Claimant 4 did receive some whistleblower award related to that tip.

Claimant 4 and his lawyer then argued that the same information also contributed to the other investigations prompted by Claimants 1 and 2, so Claimant 4 should receive part of that whistleblower award too. After all, Claimant 4’s lawyer said, his client was the first to approach the SEC with allegations against the company.

The SEC shot down that idea pretty quick. Yes, the agency said, Claimant 4 was the first person to bring misconduct allegations to the SEC’s attention — but that unto itself is not enough to quality for a whistleblower award. The tip must either prompt the SEC to open an investigation, push a current investigation into a new investigation, or greatly accelerate the prosecution of an ongoing case.

Claimant 4’s tip did none of those things, as related to the investigation prompted by Claimants 1 and 2. Their tips may have arrived later, but they were on a separate matter. By the time SEC investigators heard about Claimant 4’s intel, that tip didn’t tell the investigators anything they didn’t already know. So no additional award for Claimant 4.

Or, as the SEC order said:

What matters for Claimant 4’s award claim is that the undisputed evidence shows that, regardless of any [timing] error, Claimant 4’s information did not lead to the Covered Action by causing the staff to open either of the Covered Action Investigations.

In other words, if you want that SEC payday — you have bring high-quality information, and bring it quickly. That’s what Claimant 2 did, Claimant 4 did not, and Claimant 1 kinda sorta did but not quite quickly enough.

Rest assured, the whistleblower bar will be making that point to your employees in prompt fashion, too. Compliance officers should respond accordingly.

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