SEC Denies Whistleblower Awards for Three Claimants

September 1, 2016

On July 19 of this year, the Securities and Exchange Commission (SEC) denied the appeals of three claimants who applied for whistleblower awards related to a recent enforcement action. The SEC whistleblower awards program provides awards to individuals who can show that they voluntarily provided original information that led to a successful enforcement action resulting in $1 million or more in total recovery to the government. Applicants who meet these criteria are entitled to 10 to 30 percent of the total recovered amount.

The July 19 order addressed the appeals of three claimants who were among 16 individuals denied an award related to an enforcement action in 2015. The SEC initially determined that none of the 16 individuals qualified for an award because the information they provided did not lead to the successful enforcement action in question. On appeal, the agency affirmed this determination for the three claimants who filed for reconsideration of the decision.

While each of the three claimants established that they had provided some information to the SEC, the agency found that their information had no impact on the successful enforcement action and therefore did not meet award criteria. Two of the claimants had provided information about matters that were unrelated to the successful enforcement action and made these reports to field offices that were not involved in the investigation. The agency found that the information was never relayed to the enforcement action investigators and would not have contributed to their efforts in any event because it was not relevant to their inquiries.

The other claimant did provide information generally related to the investigation to the proper field office, but the agency determined that this information also had no meaningful impact on the successful enforcement action. The information was provided after the investigation had already begun and did not concern the ultimate focus of the action. In addition, the agency determined that the claimant had no direct communications with the particular investigators on the matter, which further indicated that the information played no role in their efforts.

Although the three claimants involved in this matter did not ultimately prevail in their application for a whistleblower award, the program remains a vital tool in enforcing SEC regulations. Individuals who provide information to the SEC about unlawful conduct do a service to shareholders and the public more generally, and the agency has shown that it is willing to make generous awards to applicants who meet the statutory criteria.

As the July 19 order makes clear, applicants for whistleblower awards must make a credible showing that their information did in fact contribute to the SEC’s successful enforcement action in order to benefit from the whistleblower program, as required by law. Whistleblowers who do so can receive significant rewards for their willingness to come forward.

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