SEC Awards Whistleblower $14 Million Bounty
October 3, 2013
The US Securities and Exchange Commission (SEC) has awarded more than $14 million to a whistleblower under its bounty program. This award is the largest made by the SEC's Office of the Whistleblower (OWB) since its 2011 inception. The bounty sends a powerful message to those employers that had doubted the OWB's relevance based on its recent history of awarding relatively small sums to claimants despite receiving large numbers of tips.
Under the bounty program, a whistleblower who provides original information to the SEC leading to a recovery exceeding $1 million is entitled to 10 to 30 percent of the amount recovered. However, the SEC does not provide information regarding the target of a particular enforcement action, the nature of the action or the actual percentage of the monetary sanctions awarded to the whistleblower.
The OWB's most recent award claimant did not wish to be identified. Often, a whistleblower continues to be employed at a corporation that had been the subject of an enforcement action after anonymously blowing the whistle on perceived fraudulent activities.
Although some cases stemming from whistleblower tips may move slowly to a resolution, the SEC disclosed that it initiated an enforcement action and secured investors' funds less than six months after receiving the latest bounty recipient's tip. In a statement, Sean McKessy, chief of the OWB, said that "while it is certainly gratifying to make this significant award payout, the even better news for investors is that whistleblowers are coming forward to assist us in stopping potential fraud in its tracks so that no future investors are harmed."
The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed in 2010, provided for the creation of Offices of the Whistleblower at the SEC and at the Commodity Futures Trading Commission. The Financial Industry Regulatory Authority and the Internal Revenue Service also administer similar bounty programs. Whistleblower incentive programs have been developed in an effort to ferret out fraud and waste and to follow in the footsteps of the government's original bounty program, the False Claims Act. The Department of Justice continues to vigorously prosecute cases under the False Claims Act, amounting to billions of dollars in recoveries.
Although the SEC's latest award does not approximate the IRS's record-setting 2012 award of a $104 million bounty, the SEC's action should prompt an employer to emphasize proper ethics and compliance practices, especially when implementing internal programs mandated by the Sarbanes-Oxley Act. Otherwise, an employee, vendor or consultant may be incentivized to report perceived illegal, unsafe or fraudulent employer practices to a federal agency.
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