What Is an SEC Whistleblower?

Meet the Whistleblowers

The SEC whistleblower program operates under the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed by Congress in response to the 2008 financial crisis. The program is managed by the SEC’s Office of the Whistleblower, which falls under the Division of Enforcement.

Like most federal whistleblower programs, the SEC program was created to encourage individuals with evidence of fraud and other violations to come forward. Under the program, whistleblowers are eligible to receive awards of between 10% and 30% of the amount recovered in a successful enforcement action, provided that the amount recovered exceeds $1 million.

Understanding the SEC Whistleblower Program

The SEC’s Office of the Whistleblower states that it “was established by Congress to incentivize whistleblowers to report specific, timely and credible information about possible federal securities laws violations.” The SEC encourages whistleblowers to come forward by (i) providing them with confidentiality protections to the fullest extent allowed by law, (ii) prohibiting retaliation by employers, and (iii) offering substantial financial incentives.

Here is how the SEC’s whistleblower program works:

• Initiating the Whistleblower Process – To initiate the whistleblower process, you must submit a complaint to the SEC’s Office of the Whistleblower. While you can do this on your own, you have the option to work with an SEC whistleblower lawyer who can submit a “tip, complaint or referral” (TCR) on your behalf. TCRs must be submitted by filing Form TCR online or by mailing or faxing a copy of the form to the SEC’s Office of the Whistleblower.

• Investigating the Whistleblower’s Allegations – Once you submit a whistleblower TCR, the SEC’s Enforcement Division will assign an enforcement attorney to review your submission. If the enforcement attorney determines that your allegations warrant further inquiry, your submission will be assigned to an SEC investigative team. The team will then investigate your allegations to determine whether an enforcement proceeding is warranted.

• Initiating and Winning an Enforcement Proceeding – If the SEC’s investigative team determines that an enforcement proceeding is warranted, it will refer the matter to the SEC’s Division of Enforcement for prosecution. The SEC’s Enforcement Division will then seek a favorable result (i.e., a settlement or judgment) in court. If the SEC’s enforcement proceeding results in more than $1 million in sanctions, you may be eligible to receive a whistleblower award.

• Receiving a Whistleblower Award – If you are eligible to receive a whistleblower award, the SEC’s Office of the Whistleblower will post a Notice of Covered Action online. You will then have 90 days to submit an SEC whistleblower award application (Form WB-APP). If your award application is granted, you will receive between 10% and 30% of the amount the SEC recovers.

• Applying for a Whistleblower Award in Multiple Proceedings – If you are eligible to receive a whistleblower award, you may be entitled to receive an award in multiple proceedings. Under the SEC’s rules, “the Commission will pay an award based on the total monetary sanctions collected in the Commission action or related action unless the criteria for making a separate award determination in a related action are satisfied.” In either case, the commission will award between 10% and 30% of the amount recovered, and you will need a lawyer to help you pursue the full amount to which you are legally entitled.

FAQ: Understanding the SEC Whistleblower Program

What Is an SEC Whistleblower?

An SEC whistleblower is an individual who submits a complaint to the SEC’s Office of the Whistleblower. Whistleblowers can report fraud and other violations in the financial markets, as well as violations of the federal securities laws (i.e., the Securities Act of 1933 and the Securities Exchange Act of 1934) by publicly traded companies. Whistleblowers can also report violations of the Foreign Corrupt Practices Act (FCPA).

Can I File an SEC Whistleblower Complaint Anonymously?

Yes, you can file an SEC whistleblower complaint anonymously. However, doing so requires the help of a lawyer. The SEC’s Office of the Whistleblower states that, “the whistleblower must be represented by, and provide the Commission with contact information for, counsel in connection with the submission of information to the Commission and the claim for an award in connection with the information submitted to the Commission.”

What are the Types of SEC Whistleblower Fraud?

Under the Dodd-Frank Act, a whistleblower is any individual who provides the SEC with information concerning a violation of securities law. In addition, the whistleblowing program covers violations of the Foreign Corrupt Practices Act, which prohibits bribery and corruption of individuals and entities in foreign countries.

Essentially, this means individuals may be eligible for a reward if he or she provides the SEC with information involving the following subject-matter:

• substantive violations of the Foreign Corrupt Practices Act;
• fraudulent misstatements or omissions in public company filings;
• false or misleading statements about a company’s financial condition;
• fraudulent manipulation of the price or volume of traded securities;
• theft or misappropriation of securities or customer funds;
• violations of the broker-dealer registration provisions;
• insider trading;
• the operation of unregistered or fraudulent investment schemes;
• submission of fraudulent misstatements or omissions in reports or statements filed with the Commission by municipal securities dealers and municipal advisors;
• manipulative trading practices in connection with securities-based swaps;
• misconduct in connection with the asset-backed securities market;
• violation of the broker-dealer or municipal securities dealer registration provisions of the securities laws;
• violations of the investment company registration provisions of the securities laws;
• violations of the National Securities Exchange registration provisions of the securities laws;
• aiding and abetting, soliciting, or causing violations of the above-listed laws; or
• violations of the SEC’s whistleblower rules.

Do I Need a Lawyer to File an SEC Whistleblower Complaint?

While hiring a lawyer is not required if you plan to report alleged violations of the federal securities laws, it is highly recommended. You may need a lawyer to obtain whistleblower protections, and your lawyer can also help you seek an award once you become eligible. Since you can engage a lawyer to file an SEC whistleblower complaint at no out-of-pocket cost, there is no reason not do so.

Will I Be Able to Remain Anonymous if I Choose to Become an SEC Whistleblower?

If you decide to file an SEC whistleblower complaint anonymously, your identity will remain confidential. If you file your complaint and provide your identity to the SEC, the SEC will keep your identity confidential unless and until it is necessary to disclose your identity in order to advance its investigation. However, the SEC will not disclose your identity to your employer or to the subject of the SEC’s investigation.

How Long Do I Have to File an SEC Whistleblower Complaint?

There is no time limit for filing an SEC whistleblower complaint. With that said, if you have information about a federal securities law violation, you should not wait any longer than necessary to come forward. If the SEC is unable to pursue an enforcement proceeding due to the statute of limitations, you may be ineligible to receive a whistleblower award.

How Do I Know if I Qualify as a Whistleblower?

You are eligible to apply for a whistleblower reward if the information you provide to the SEC meets the following requirements:

• The information is provided voluntarily;
• The information is provided to the Commission in accordance with the procedures set forth in SEC Rule 21F-9;
• The information must be original information.

Each of these requirements are explained in more detail.

What is Considered “Voluntary Information” to the SEC?

This element is satisfied if you provide information to the SEC before:

• you receive a request, inquiry, or demand from the SEC, Congress, any governmental authority, or any self-regulatory organization relating to the subject matter of your submission; or
• you receive a request, inquiry, or demand in connection with an investigation, inspection, or examination conducted by a governmental authority or self-regulatory organization relating to the subject matter of your submission.

What Qualifies as “Original Information” to the SEC?

This element is satisfied if the information is based on your “independent knowledge” or “independent analysis” and is not already known to the SEC from any other source, unless you are the original source of the information. The SEC has defined “independent knowledge” as:

“factual information in your possession that is not derived from publicly-available sources. Knowledge may be obtained from your experiences, communications and observations in your business or social interactions.”

The SEC has defined “independent analysis” as:

“your own analysis, whether done alone or in combination with others. Analysis means your examination and evaluation of information that may be publicly available, but which reveals information that is not generally known or available to the public.”

Speak with an SEC Whistleblower Lawyer in Confidence

If you would like to know more about becoming an SEC whistleblower, we invite you to schedule a free, no-obligation consultation. To speak with an SEC whistleblower lawyer at Spodek Law Group in confidence, please call 908-643-7005 or tell us how we can reach you online today.