It’s not enough to provide information that may or may not lead anywhere. The information provided must lead directly to a successful action against the accused person or entity in order for the whistleblower to be able to collect an award. Of course, this is only the case if the information provided was also original information. In order to qualify, the information must either directly contribute to the successful enforcement, or it must cause the SEC to open an investigation, reopen an investigation, or pursue a different avenue as part of an ongoing investigation, which then results in a successful enforcement.
When it comes to information that directly leads to a successful enforcement, two or more whistleblowers may be eligible for an award if they come to the SEC independently of each other and provide the same information. The idea is to encourage people with information to come forward, so there’s no point in punishing someone for coming to the SEC with the same information as another whistleblower if the two informants didn’t know about each other.
But information that leads to an SEC investigation isn’t enough. The investigation needs to result in a judicial or administrative action, resulting in monetary sanctions worth more than $1 million.
In addition to SEC actions, a whistleblower can also be eligible for an award if related government agencies opened or reopened an investigation as a result of the information provided by the whistleblower, but only if the whistleblower meets all the other requirements for an award. These actions need to have taken place in addition to an SEC action.
The Dodd-Frank Act is the legislation that allows whistleblowers to collect awards and it went into effect on July 21, 2010. As a result, any information provided prior to that date is not eligible for a whistleblower award. At least one whistleblower has asked the SEC to consider leniency on the issue of timing, but so far the Commission has been inflexible on that point.
After the Dodd-Frank Act went into effect in 2010, the SEC whistleblower rules became effective on August 12, 2011. Normally, any information provided prior to that 2011 date is ineligible for an award – unless it was provided in writing. Any verbal information provided between July 21, 2010, and August 12, 2011, is not eligible for an award, but those who submitted their information in writing in that time frame maintain the possibility of winning an award.
After the effective date of the SEC whistleblower rules, eligible tips have to be submitted using the SEC’s online portal, or by filing a Form TCR.
Whistleblowers are not required to be represented by professional counsel unless they are submitting their information anonymously. Even if they are not doing so anonymously, it’s still a good idea for whistleblowers to get professional assistance when submitting information to the SEC. That said, those professionals are unlikely to be eligible to receive any part of the award, if one is granted.
Agents of foreign governments are not eligible for whistleblower awards, but other types of foreign whistleblowers are eligible, as long as the information they provide relates to a securities fraud with any type of U.S. jurisdiction. Continue reading