SEC’s Office of the Whistleblower In Early Phase of Evaluating Reward Claims

Securities and Exchange Commission’s Office of the Whistleblower Chief Sean McKessy says that the preliminary stage for processing claims stemming from whistleblower cases that resulted in over $1 million in sanctions is underway. McKessy spoke before an Investment Adviser Association-hosted panel earlier this month. He said that the share that an eligible whistleblower can receive would depend on the amount that is actually collected, which might be different from how much a party has been ordered to pay. McKessy made sure to say that the views expressed were his alone and did not reflect those of the SEC or other staff members.

The first reward under the SEC’s whistleblower program, implemented under the
2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, has yet to be issued. Per the program, whistleblowers that provide “original information” of their own accord that leads to the government recovering over $1 million in monetary penalties are entitled to 10-30% of what is paid. SEC staff can also investigate and prosecute employers that retaliate against an employee who stepped forward, regardless of whether or not the federal regulator decided to bring a case based on the information that this person provided.

Also speaking this month alongside McKessy this month, but at a different panel (organized by Securities Docket) was Commodity Futures Trading Commission Whistleblower Office Director Vincente Martinez. Martinez said that if a whistleblower is privy to information that might fall under the jurisdiction of the CFTC or the SEC, then he/she should notify both regulators.

Like the SEC’s whistleblower program, the CFTC’s program rewards an informant who provides original information that leads to a case resulting in penalties of over $1 million with 10-30% of that amount. There are, however, major differences between the two programs.

Whereas the SEC lets whistleblowers recover a reward based on the aggregate of related penalties that it and other regulators obtained, the CFTC limits how much the informant can get based on what it or another regulator received. Both the SEC and the CFTC lets whistleblowers remain anonymous, but it is just the SEC and not the CFTC that requires an informant to have legal representation in order to collect the reward. A whistleblower that reports his/her information to the CFTC would, however, have to reveal his/her identity to agency staff.

McKessy said the SEC is getting about seven tips daily and that these are timely, specific, and credible tips. Martinez said he was surprised with both the types of individuals that are acting as whistleblowers to the CFTC, as well as with the quality of the tips. Both men offered the reminder that whistleblower doesn’t have to work for a company to blow the whistle on it.

The fear of losing one’s job, income, and benefits, dealing with possible repercussions while at the workplace, or being sued for making allegations can prevent someone from deciding to step forward as a whistleblower. The protections and reward provided by the whistleblower programs will hopefully assuage these concerns while offering incentive.

Our stockbroker fraud law firm represents institutional and individual investors throughout the US. Contact Shepherd Smith Edwards and Kantas, Ltd., LLP.

SEC Whistleblower Office in Early Stage of Processing Award Claims, Chief Says, Bloomberg/BNA, March 12, 2012

Checking In with the Heads of the New SEC and CFTC Whistleblower Offices, Project on Government Oversight, March 12, 2012

More Blog Posts:
SEC Looking at Other Ways to Communicate with Whistleblowers, Institutional Investor Securities Blog, September 14, 2011

Whistleblower Claims SEC is Illegally Destroying Records of Closed Enforcement Cases, Institutional Investor Securities Blog, August 31, 2011

SEC’s Office of the Whistleblower Received 334 Tips During FY 2011, Stockbroker Fraud Blog, December 8, 2011