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SEC Whistleblower Program & Financial Fraud Reporting

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, the public at large, and of course, whistleblowers

 

How Does the SEC Whistleblower Program Work?

 

Whistleblowers who report violations of the federal securities laws to the SEC may be eligible for 10-30% of monetary sanctions collected in a successful enforcement action. Tipsters must voluntarily provide original information that causes the Commission to open an investigation, or substantially contributes to an ongoing investigation.

Numerous factors can increase the size of an 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.

The Employee Whistleblower

Anyone can be an SEC whistleblower, but most come from inside the 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.

But the rules here 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 SEC’s own rules as an option. Whistleblowers need to carefully consider the risks and rewards of reporting to an employer, the Commission, or both.

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 should engage counsel to best navigate this tricky terrain.

Helpful Resources

Have questions about your eligibility to participate in the SEC Whistleblower Program? Reach out to our SEC whistleblower & retaliation team. We can help.

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