SEC Makes First Payout in Whistleblower Awards Program

| Jason M. Knott

Section 922 of the Dodd-Frank Act of 2010 has received a lot of attention in legal circles.  That provision established a whistleblower program under which a person who voluntarily provides the Securities & Exchange Commission with information about an employer’s wrongdoing can receive an award.    To help strengthen the program, Section 922 also protects whistleblowers from retaliation for disclosing information that they report directly to the SEC. 

On August 21, the SEC announced its first payment of a whistleblower award under the new program.  

The whistleblower helped the SEC win more than $1 million in sanctions; in exchange, the SEC gave the whistleblower nearly $50,000 – 30% of the total amount collected to date, which is the maximum percentage permitted by the statute.  The SEC noted that an increase in collections would increase payments to the whistleblower, so the whistleblower will be cheering the agency on as it seeks to collect additional funds from the wrongdoers. 

Another whistleblower in the same matter didn’t get an award because the information provided “did not lead to or significantly contribute” to the enforcement action.  The SEC’s release doesn’t explain why not, but the decision doesn’t appear to be too controversial, because the second whistleblower chose not to pursue the award request further.

We’ll be watching to see if the SEC announces any more awards, and will be especially interested to see if the SEC tells us more than the minimal information it included in its first announcement.  The whistleblower chose to remain anonymous, which Section 922 permits (at least until the SEC is required to disclose the identity of the witness in a public proceeding, as this FAQ from the SEC’s website notes).  But the SEC also declined to provide information about the individuals who were sanctioned or the wrongdoing at issue, indicating that it decided to protect the whistleblower’s confidentiality at the cost of the additional publicity that would result from disclosing what actually happened.