The SEC Whistleblower Practice

In response to the serial misconduct that precipitated the 2008 financial crisis, Congress established a reward program to empower whistleblowers to report misconduct to the Securities and Exchange Commission (SEC). The program was the first of its kind—a win for the government, investors, and the public at large.

How Does the SEC Whistleblower Program Work?

Whistleblowers who report federal securities violations to the SEC may be eligible for 10-30% of monies collected in an enforcement action where the sanctions exceed $1 million. Tipsters must voluntarily provide original information that causes the Commission to open an investigation or substantially contributes to an ongoing investigation.

Whistleblowers who work with an attorney are entitled to report misconduct anonymously.

Numerous factors can increase the size of a whistleblower award, including the significance of the information; the assistance provided by the whistleblower; law enforcement interest; and, when a whistleblower is an employee, the effort to work through internal compliance and reporting channels.

The success of the SEC Whistleblower Program is simply astonishing. As of the close of FY2024, the SEC has paid more than $2.2 billion to individual whistleblowers. Importantly, all awards are paid from a replenishing Investor Protection Fund that is financed by monetary penalties levied against securities law violators. In other words, neither the American taxpayer nor the SEC carries the financial burden for whistleblower awards. 

Read more FAQs about the SEC Whistleblower Program

The Employee Whistleblower

Anyone can be an SEC whistleblower, but most come from inside the target company. In the last fiscal year, 62% of those who received awards were employees or former employees. These are not disgruntled workers with an axe to grind. To the contrary, most employees try to report internally first. Only after the company ignores their concerns—or worse, retaliates against them for doing the right thing—does an employee turn to the Commission.

Outten & Golden is a recognized and longtime leader representing employees who experience retaliation for doing the right thing. But the rules and protocols for the SEC Whistleblower program can get a little confusing. Under the program rules, whistleblowers are only protected against retaliation if they report their concerns to the Commission before they are retaliated against. Yet at the same time, the program also pays increased rewards to whistleblowers who follow internal compliance procedures. What’s a whistleblower to do?

One way around this pickle is to report internally and to the Commission at the same time. This may seem counterintuitive, but it is actually in the program rules. Whistleblowers need to carefully consider the risks and rewards of reporting to an employer, the Commission, or both. Talking to a lawyer who is familiar with this process may help.

SEC Whistleblower Employment Protections

For those who opt to report to the Commission, the program offers significant protections. Employers cannot terminate, demote, suspend, harass, or in any way discriminate against an employee who reports possible violations of the federal securities laws. Moreover, whistleblowers who report to the SEC have the right to file a retaliation complaint in federal court seeking double back pay (with interest), reinstatement, reasonable attorneys’ fees, and reimbursement for certain litigation costs. Pursuing a private action in federal court is complicated and time sensitive, and whistleblowers may wish to discuss with counsel to best navigate this tricky terrain.

There are many laws that protect whistleblowers from different types of retaliation, including a maze of federal and state rules.

Employers Cannot Silence Whistleblowers

The core of the SEC Whistleblower Program is the right to report misconduct. No person or entity can block an individual from communicating possible securities law violations to the Commission through confidentiality agreements, severance agreements, or non-disclosure agreements, among others. Further, companies can’t impede whistleblowing through restrictive language in documents such as codes of conduct, compliance guides, or training manuals. 

Protecting employees is central to our practice. Indeed, for more than 25 years, we have successfully represented clients both silenced and harmed by illegal employment agreements. We have significant experience dealing with various complicated scenarios, such as when internal policies are in conflict, or when bosses try to silence their employees – including whistleblowers.

Put simply, and if employees take one lesson from Outten & Golden’s whistleblower practice, take this: It is unlawful to prevent any individual, group of individuals, even clients of a bad actor from reporting possible securities violations to the SEC. The relationship with enforcement authorities is always protected.

For more information on the SEC Whistleblower Program and its employment protections, please see the statute, or feel free to contact us for a confidential conversation.