Securities Fraud: When Do SEC Whistleblower Awards Lead to Prosecution Referrals?
Securities Fraud: When Do SEC Whistleblower Awards Lead to Prosecution Referrals?
The SEC whistleblower program provides monetary awards to individuals who voluntarily provide the SEC with original information that leads to successful enforcement actions resulting in monetary sanctions over $1 million. The awards can range from 10-30% of the money collected.
To be eligible for an award, the information provided must be sufficiently specific, credible, and timely for SEC staff to commence an examination or investigation, or to add the information to an existing matter. The SEC evaluates tips and complaints it receives to determine the appropriate next steps, which could include opening an investigation, examination, or adding the information to an existing matter.
If the information prompts the SEC to open a new investigation that leads to prosecution and monetary sanctions, the whistleblower would be eligible for an award. The size of the award depends on factors like:
- The significance of the information provided by the whistleblower in advancing the investigation
- The degree of assistance provided by the whistleblower during the investigation
However, whistleblowers involved in the misconduct may have their awards reduced or denied based on their culpability or involvement. The SEC considers factors like the whistleblower’s role in the violations, responsibilities, and financial gain from the misconduct.
That said, the program does allow certain culpable whistleblowers to receive awards if they meet the criteria. So prosecution referrals can still result from culpable whistleblowers in some cases.
The Department of Justice has also brought successful prosecutions under the False Claims Act from whistleblower complaints, resulting in settlements exceeding $1.9 billion in fiscal year 2022 alone. When these qui tam suits are successful, the whistleblower typically receives 15-30% of the recovery amount.
So in summary, SEC whistleblower awards can prompt or contribute to successful prosecutions when the information is deemed high-quality and leads to enforcement actions with significant monetary sanctions. The awards provide financial incentives for individuals to come forward and report securities violations.