More than $600K Whistleblower Award to Be Issued in SEC’s First Retalitation Case

The Securities and Exchange Commission will award a whistleblower more than $600,000 for providing original information that resulted in a successful enforcement action. That’s 30% of the total monies collected related to the case,
In the Matter of Paradigm Capital Management, Inc. and Candace King Weir
. It’s also the maximum percentage of funds that a whistleblower can get in in such an action.

The Commission charged Paradigm with taking retaliatory action against the whistleblower for reporting the possible misconduct. Retaliatory actions included removing the person from their position and changing their job duties, making the individual investigate the wrongdoing that was alleged, and other acts that caused the whistleblower to feel marginalized.

SEC Office of the Whistleblower Chief Sean McKessy said that it is unacceptable to retaliate against a whistleblower. He hoped that the $600K would serve as incentive for other potential whistleblowers while serving as proof of the agency’s dedication to protecting them from retaliation.

Under the SEC whistleblower program, a person who provides high-quality original data may be eligible to receive 10-30% of money collected in a successful action if sanctions are greater than $1 million. So far, the agency has awarded 17 whistleblowers in less than 4 years with payouts totaling over $50 million.

Also this month, the SEC awarded over $1.4 million to a compliance officer who gave over information that helped the agency’s investigation into the company where the tipster worked. This is the second time a compliance person has been awarded under the SEC whistleblower program.

In other SEC whistleblower news, the regulator is looking at whether some companies are making employees sign agreements stipulating that they must forego the right to receive any type of whistleblower award in order to be eligible for severance. It was just this month that KBR Inc. settled with the Commission. The case was over restrictive language in confidentiality agreements that could potentially impede the whistleblowing process.

The Texas-based global technology and engineering company was accused of violating whistleblower protections by making witnesses in certain internal investigations sign confidentiality statements. The wording of these statements included warnings of disciplinary action, even termination, if the witnesses talked about the probe with external parties without getting KBR’s consent first. The investigations were over possible violations of securities law.

To settle KBR consented to pay a $130,000 penalty. It also modified its confidentiality statement to include language clarifying that employees may report potential violations to federal agencies without company approval or fear of reprisal.

SSEK Partners Group is a securities law firm.

The SEC Order in its first retaliation case (PDF)

The SEC Order in the Case Against KBR (PDF)

More Blog Posts:
SEC News: Regulator Grants $30M Whistleblower Award and Charges Washington Investment Advisory Firm $600K for Undisclosed Principal Transaction, False Advertising, Stockbroker Fraud Blog, September 23, 2014

SEC Files First Enforcement Action Protecting Whistleblower Confidentiality Agreements, Institutional Investor Securities Blog, April 8, 2015

SEC Examines The Way Companies Deal with Whistleblowers, Institutional Investor Securities Blog, February 28, 2015