SEC Awarding Whistleblowers Damages at a Rapid Pace

Author: Michael Cardman, XpertHR Legal Editor

June 9, 2021

Whistleblowers who report securities law violations are being rewarded by the Securities and Exchange Commission (SEC) more than ever this year.

The SEC recently awarded $23 million to two whistleblowers whose information helped federal investigators shut down a "fraudulent scheme involving multiple individuals and tens of millions of dollars in ill-gotten gains."

That brings the total amount the SEC has awarded to whistleblowers this year to at least $190 million - or about one in every five dollars out of the $928 million the commission has paid out since issuing its first whistleblower award in 2012.

The Sarbanes-Oxley Act of 2002 (SOX) makes it a felony for employers and their staffs to retaliate against employees who provide information and/or assist an investigation into a potential violation of SOX or any SEC regulations. Penalties include fines and/or up to 10 years in jail.

Under the SEC's whistleblower program, eligible individuals who come forward with high-quality, original information that leads to an enforcement action in which more than $1 million in sanctions are ordered may receive between 10% and 30% of the money collected.

The program attributes the recent uptick in awards at least in part to the leadership of its recently departed chief, who "implemented game-changing efficiencies" that resulted in a record-breaking number of awards issued to whistleblowers and a record number of whistleblower tips during fiscal 2020.

Regardless of what is causing it, the increase in whistleblower awards reminds employers about the importance of taking steps to ensure compliance with SOX, including:

  • Establishing hotlines for employees to report concerns about improper conduct,
  • Developing a code of conduct, and
  • Investigating alleged violations.