On May 13, the Securities and Exchange Commission (“SEC”) announced a $3.5 million whistleblower award.
SEC Whistleblower Award Proceeding, File No. 2016-9 (May 13, 2016). This award is significant because it represents the first time that the SEC rewarded a whistleblower for providing a tip that “bolstered”—rather than initiated—an investigation. In its order approving the award, the Commission explained that the tip caused the SEC to focus on specific conduct of which it was already generally aware. The order further noted that the tip “significantly contributed” to the success of the action by increasing the Enforcement staff’s leverage during settlement negotiations.
This award is noteworthy in at least two other respects. First, as described in the Commission’s award order, the Claims Review Staff initially denied the whistleblower’s claim, but reconsidered after Enforcement staff submitted additional information that substantiated the value of the whistleblower’s tip. Second, the award order stated that the award was justified in part because of the hardships the whistleblower had suffered after coming forward with his tip, including his inability to find employment since reporting the misconduct.
Days later, the SEC announced a whistleblower award of more than $5 million—the third highest amount ever—to a corporate insider whose tip allowed the SEC to uncover violations that would have otherwise been “nearly impossible” to detect. In announcing this award, Sean McKessy, Chief of the SEC’s Office of the Whistleblower, stated that the SEC “anticipate[s] the continued issuance of significant whistleblower awards in the months and years to come.” SEC Rel. No. 2016-91,
SEC Awards More Than $5 Million to Whistleblower, May 17, 2016.
One potential offshoot of these well-publicized whistleblower awards is that employees may seek to contact the SEC about misconduct, even if they think misconduct is under investigation. Companies conducting internal investigations should bear such consequences in mind when managing the information flow with employees, especially during the early phases of an investigation, when company and external counsel are untangling the facts. An employee who learns potentially harmful facts during an internal investigation may feel incentivized to disclose that information to the SEC, even if the SEC is already investigating the misconduct.
