SEC Pays its First Whistleblower

August 23, 2012

718988_whistle.jpgThe Dodd-Frank Act authorized the SEC to make awards to whistleblowers who provide information that leads to an enforcement action resulting in $1 million or more in sanctions. The SEC whistleblower program began operating in August 2011. The SEC, through its Chairwoman Mary L. Schapiro, was a staunch advocate for the creation of the program.

The SEC has recently announced its first whistleblower award. And by awarding a maximum 30% share of its recovery, the SEC has certainly "put its money where its mouth is." According to the SEC's press release, the whistleblower (whose identity is protected by law) "provided documents and other significant information that allowed the SEC's investigation to move at an accelerated pace and prevented the fraud from ensnaring additional victims." In the enforcement action resulting form the whistleblower's information (which is not identified) a court has ordered more than $1 million in sanctions and may enter future awards against additional parties. The whistleblower will receive 30% of the sanctions paid to the SEC. To date, the SEC has been paid $150,000 and the whistleblower will therefore initially receive $50,000. The SEC denied recovery to a second whistleblower in the enforcement action because the information that person provided "did not lead to or significantly contribute to the SEC's enforcement action."

The relatively small $50,000 award to this first whistleblower should not obscure the fact that the whistleblower program will lead to many future enforcement actions. The SEC is currently receiving eight whistleblower tips a day. That the first whistleblower award was made within a year of the program's start suggests that the SEC is aggressively following up on these whistleblower tips. We should expect to see many more whistleblower awards in the near future.