What You Need to Know
- Key takeaway #1The SEC awarded a record-breaking whistleblower award of $279 million related to successful actions brought by the SEC and one other agency.
- Key takeaway #2This is a reminder that whistleblowers are financially incentivized to further government investigations, not just to initiate them. Companies that self-report misconduct to the government (or are already involved in government-initiated investigations) should consider the possibility of whistleblower involvement as the investigation progresses.
- Key takeaway #3The size of the award is certain to attract potential whistleblowers; it should also serve as a reminder that SEC-regulated companies must offer robust, retaliation-free, avenues for internal reporting.
On May 5, 2023, the Securities and Exchange Commission (“SEC” or “Commission”) announced a record-setting whistleblower award of nearly $279 million. This award more than doubles the SEC’s previous $114 million record-setter, issued in October 2020.
The SEC award order was heavily redacted, obscuring (as usual) any details about the underlying enforcement actions. What is known is that the assistance the whistleblower provided contributed to the SEC’s enforcement action and two actions pursued by another agency. Notably, the whistleblower merited this outsized award even though he or she did not prompt the opening of the Commission’s investigation, but provided information related to “certain of the conduct that the Commission ultimately charged. . . .” The whistleblower’s sustained assistance, which included multiple interviews and written submissions, expanded the scope of the misconduct that was ultimately charged, and, per the SEC, was critical to the success of the actions. This award therefore serves as a stark reminder that the SEC awards not only those who initiate a government investigation, but also those who further one. Companies involved in government-initiated investigations cannot discount the possibility of whistleblower involvement at any stage.
Not surprisingly, the SEC is touting this recent development as reflecting the “tremendous success” of its whistleblower program. Clearly, this record-breaking award has the potential to incentivize whistleblowers to come forward with information about potential securities law violations.
While the size of the award is certain to attract potential whistleblowers, it is also a reminder to companies regulated by the SEC that they must offer robust, retaliation-free, avenues for internal reporting. And companies must keep those internal reporting channels open even when an investigation is already underway.
For further information, please contact:
Thomas A. Hanusik, Partner, Crowell & Moring
thanusik@crowell.com
