What is the SEC whistleblower program?

moneyThe SEC whistleblower program was established by Congress as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Dodd-Frank Act is one of several financial reforms, another of which was the Sarbanes Oxley Act, which was passed in 2002.

The whistleblower program gives awards to eligible whistleblowers who voluntarily give original information to the SEC that results in successful SEC enforcement actions with civil sanctions that are greater than $1 million. A whistleblower is an individual or several individuals acting jointly. Corporations and similar entities cannot be considered whistleblowers.

To be considered original information for the purposes of an award, a Texas whistleblower has to include information derived from their independent knowledge or analysis, and it can’t be known by the SEC already from another source, except when the whistleblower is the original source because they first reported the information to the Department of Labor and Department of Justice, which provided the information to the SEC. The information can’t be exclusively derived from allegations made in government reports or judicial and administrative hearings unless the whistleblower is a source of the information. Independent knowledge must be facts that are not gotten from sources that are publicly available. The whistleblower might have observed the facts first-hand but can also get knowledge via experience or discussion.

The SEC considers information to be provided voluntarily only when the individual gives it to the SEC before getting a request or demand from the SEC or in connection with an investigation by the Public Company Accounting Oversight Board or related to a Congressional or other federal investigation.

If the whistleblower is required to report information because of a prior duty to an authority such as the SEC, the information isn’t considered to be voluntary, and he’s not entitled to an award. The disqualification isn’t based on an employee’s contractual obligation to an employer or other third party besides the SEC. An employer can’t take away incentives that are critical to an effective whistleblower program by requiring that employees sign agreements to report securities violations to the SEC.

Generally, civil sanctions can include disgorgement, interest, and penalties. When a whistleblower meets the appropriate criteria, they can get 10% to 30% of whatever the SEC and other authorities recover in related actions. The awards can be significant because the sanctions imposed tend to go into the millions of dollars.

The SEC whistleblower program also gives substantial protection to whistleblowers against retaliation. This allows insiders with information to approach the SEC without worrying about reprisal. Employers are not allowed to discharge, suspend, demote, harass, or discriminate against a whistleblower for legally reporting wrongdoing. If there is retaliation, the employee can obtain relief, including double backpay, reinstatement, and compensation for expenses.

In practice, the SEC Whistleblower Program has received and accepted tips from people across the country and from 103 foreign countries. Even whistleblowers who live overseas, when misconduct happens overseas, may be eligible for awards if the information results in a successful enforcement action in the United States by an agency enforcing United States securities laws.

It can be important to obtain representation from an experienced employment lawyer if you intend to file a qui tam action and become a whistleblower in Texas. Contact us at (214) 528-6500 or via our online intake form.

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