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Overview of the SEC Whistleblower Program

by Hoyer Law Group, PLLC | Sep 9, 2013 | Whistleblowers

The Whistleblower Program is designed to aid the SEC’s efforts to protect investors from those who violate the securities laws by encouraging those who are aware of misconduct to come forward to report it to us so that prompt and effective action can be taken to prevent or stop the misconduct.”

—Sean X. McKessy, Chief, Office of the Whistleblower

In response to the fiscal crisis of the late-2000s, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.  Commonly referred to as “Dodd-Frank,” the legislation restored much of the regulatory authority that had deteriorated over the previous decades.  The authors of the legislation recognized the crucial role that whistleblowers have served in exposing corporate fraud and protecting the public coffers.  Therefore, as part of these reforms, Dodd-Frank created the Securities and Exchange Commission’s Office of the Whistleblower.

The Office of the Whistleblower rewards citizens for exposing violations of the federal securities laws and offers protections in the event that employers retaliate against employees who report the abuse to the Securities and Exchange Commission (“SEC”).  Specifically, Dodd-Frank authorizes the SEC to provide monetary awards to eligible individuals who come forward with high-quality, original information that leads to a SEC enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected.  Prior to Dodd-Frank, whistleblowers could seek rewards from the SEC of up to only 10% of regulatory penalties.

According the SEC, an eligible whistleblower “is a person who voluntarily provides us with original information about a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur.”  If the information provided causes the SEC to initiate a new investigation, re-open a previously closed investigation, or pursue a new line of inquiry in connection with an ongoing investigation, and the SEC brings a successful enforcement action based at least in part on the information provided, the whistleblower may be entitled to a reward.

This is an exciting and promising development in the ongoing fight against taxpayer fraud.  The whistleblower program began operating in August 2011 and the first award was made just one year later in August 2012.  That first whistleblower received nearly $50,000, which was 30% of the amount collected in an SEC enforcement action against the perpetrators of the scheme.  Most recently, the SEC said three unnamed whistleblowers would each receive 5% of any sanctions collected in a Massachusetts federal court case against an investment fund that swindled its investors of nearly $2 million.  The SEC said in an administrative order that the whistleblowers “voluntarily provided original information to the commission that led to the successful enforcement” of the matter.

This is only the beginning.  According to Sean McKessy, chief of the SEC’s Office of the Whistleblower, “we are likely to see more awards at a faster pace now that the program has been up and running and the tips we have gotten are leading to successful cases.”

One of the primary reasons the SEC’s whistleblower bounty program is beginning to show signs of success is the number of safeguards in place to protect citizens who provide helpful tips.  Among the numerous protections afforded by Office of the Whistleblower, anyone wishing to provide information pertaining to securities fraud may do so anonymously.  However, in order to do so, you must have an attorney represent you in connection with your submission and you must also provide the attorney with a completed form signed under penalty of perjury at the time you make your anonymous submission.

The James Hoyer law firm has many years of experiencing representing whistleblowers and advocating on their behalf, including claims submitted anonymously to the SEC.  If you believe you have information regarding a possible violation of federal securities laws or regulations and are considering submitting your information to the SEC, please contact James Hoyer for an evaluation of your claims.

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