The Securities and Exchange Commission’s Whistleblower Program, with its robust employment and anonymity protections and the prospect of significant monetary awards, is one of the most effective tools for reporting financial misconduct and protecting investors. Since the program was founded in 2011, the SEC has awarded more than $2.2 billion to over 444 whistleblowers.
While each case is different, in broad strokes, there are nine steps that shape the journey of every SEC whistleblower:
Step 1: Spot Fraud
Every whistleblower—company insiders and outsiders alike—begins with the realization that something might be wrong. It could be a suspicious transaction, or a misleading disclosure. The federal securities laws are vast and so too are their violations. As a gating step, whistleblowers should try to confirm that a potential violation of the federal securities laws has occurred or is about to occur.
Step 2: Speak with an Attorney
Before taking action, we recommend that whistleblowers consult an experienced SEC whistleblower attorney. A lawyer can help define the suspected violation, guide you through the process of preparing your case, advise you on your rights, counsel on whether internal reporting make sense, and make sure your complaints are legally protected from retaliation. Timing matters in SEC whistleblower submissions because as an award must be based on original information not already known to the SEC. There is no prize for second place, so get to the Commission first.
Importantly, while anyone can file a tip and all tips are confidential, only individuals who are represented by an attorney can file their tip with the SEC anonymously.
Step 3: Gather Evidence…Carefully
Documentary evidence—such as emails, financial records, memos, meeting notes, call transcripts—is the foundation of a credible case. But proceed with caution to ensure that you are legally entitled to the evidence in your possession. Taking documents or equipment that belong to the company can put you at legal risk or torpedo your case. Stay on the right side of the rules and law. Again, an experienced attorney can guide you through this process.
Step 4: Have Your Attorney File a Tip
To be eligible for an award, whistleblowers must provide the SEC with original, timely, and credible information that either causes the SEC to open a new investigation or significantly contributes to an existing one.
Your attorney will help you prepare what is known as Form TCR. Most whistleblower attorneys submit the tip online using the SEC’s whistleblower portal. While this sounds relatively simple, successful submissions, with supporting data and analysis, can take weeks or even months to craft. An experienced whistleblower attorney knows how to prepare high-quality submissions that spell out issues most important to federal law enforcement.
Step 5: Participate in an SEC Investigation
Once the SEC receives a tip, it reviews it to see if it fits with their enforcement priorities or existing investigations. If the SEC determines that the information merits further review, it will open an investigation into the matter. A whistleblower may be asked, among other things, to participate in interviews, explain key documents, and identify potential witnesses. How much the SEC leans on the whistleblower varies from case to case, but the one certainty is that investigations can take years to resolve, particularly for large, complex matters.
Step 6: Cooperate in an Enforcement Action
Once the SEC completes its investigation, it can either settle with the company or proceed to an administrative action or to litigation in federal court. In a successful enforcement action, which may require additional assistance from the whistleblower, the Commission will impose a variety of financial consequences on the fraudster, including disgorgement, restitution, and civil monetary penalties
If the SEC pursues enforcement based on the whistleblower’s tip and secures monetary sanctions of more than $1 million, the whistleblower becomes eligible for a financial award. Awards are paid out of a special fund and do not reduce the amount that is paid back to harmed investors.
Step 7: Claim Your Award
After the SEC resolves its enforcement action, it will post a “Notice of Covered Action.” This triggers a series of strict deadlines to submit a claim for a whistleblower award. The award application must set forth exactly how the whistleblower contributed to the SEC’s successful enforcement action, emphasizing the strengths and explaining any weaknesses in the claim.
Whistleblowers are eligible for between 10%-30% of the monetary sanctions arising out of their tips. The SEC considers several factors when determining the award amount, including the significance of the information, the whistleblower’s cooperation, and whether the whistleblower reported to the SEC in a timely fashion.
Step 8: Receive Your Preliminary Determination
After processing all award applications for a Notice of Covered Action, the SEC will issue a preliminary determination that explains whether it will grant the whistleblower an award and, if so, what the award amount will be. A whistleblower can either accept the award or appeal the decision if they believe the SEC wrongly denied an award or undervalued the whistleblower’s contribution to the enforcement action.
Step 9: Receive Payment
Once approved, the SEC pays the award from a replenishing investor protection fund. In addition to not coming out of the money returned to investors, this fund also doesn’t come from taxpayers. Instead, it comes from the penalties imposed on fraudsters. In this way, wrongdoers pay the whistleblowers who expose them.
Critically, even when paying awards, the SEC maintains whistleblower confidentiality. It does not announce what case led to a particular award, and it does not disclose a whistleblower’s identity.
The SEC Whistleblower Program has transformed financial enforcement, with whistleblowers contributing to billions of dollars in recoveries against financial wrongdoers. Whistleblowers have been fairly rewarded for this effort, with over $2 billion in awards since the program’s inception. These figures underscore the program’s success in uncovering fraud, protecting investors, and promoting market integrity.
If you’ve witnessed securities fraud or suspect misconduct, don’t wait. Contact the SEC Whistleblower & Retaliation Practice at Outten & Golden. Our team led by Tammy Marzigliano and Dave Jochnowitz has helped whistleblowers recover millions while safeguarding their careers and identities.
