Whistleblowing often starts with uncertainty. First, an individual may notice something: numbers not lining up, investor disclosures that hide the full story, or internal warnings swept under the rug. Then, the question shifts from whether there is wrongdoing worth reporting. The Securities and Exchange Commission (“SEC” or “Commission”) whistleblower award program was designed to make reporting as safe for the whistleblower as possible. It gives individuals a confidential way to report possible securities law violations and, when the requirements are met, apply for an SEC whistleblower award.
What Is the SEC Whistleblower Program and Who Qualifies?
The SEC Whistleblower Program was created under the 2010 Dodd-Frank Act to encourage individuals with specific and credible information exposing potential securities violations to come forward. The individual does not need to work for the company that is being reported. Both employees and former employees can qualify for a reward. The violation can be in the past or currently ongoing. But an important factor to remember is that the strongest tips usually do more than raise an eyebrow. They help explain to the SEC what happened, who was involved, how investors may have been misled, and where the SEC can find more evidence.
If a whistleblower voluntarily provides original information that leads to a successful SEC enforcement action with more than $1 million in monetary sanctions, the award can range from 10% to 30% of the money collected. That award may be substantial, but it is not guaranteed. Generally, the SEC must confirm that the information the whistleblower provided was original and the extent and scope to which that information led to an enforcement action.
What Counts As Original Information?
Original information generally includes anything stemming from the whistleblower’s independent knowledge or analysis that was not already known to the SEC. This means that the whistleblower came across the wrongdoing through their own work, observations, communications, experience, or review of information.
But there are important limits. Information protected by attorney-client privilege is generally prohibited. The SEC also limits whistleblowers who learn information through their legal representation, audit work, compliance duties, internal investigations, or corporate roles like an officer- or directorship. However, some insiders in these sensitive roles can still qualify depending on the information they have gathered and whether a more specific exception applies.
In addition to the quality of the information a claimant provides, the process in which they submit the tip matters. Generally, whistleblowers submit information either through Form TCR (which stands for “Tip, Complaint, or Referral”) or via the SEC’s online Tips, Complaints and Referrals portal.
The whistleblower must also take additional steps to claim any award after submitting the information. If the SEC will publicly post a Notice of Covered Action if it uses the whistleblower tip to bring an enforcement action with over $1 million in sanctions. The whistleblower generally has 90 calendar days from that notice to apply for an award. Missing that deadline can put the whistleblower’s entitlement to an award at risk regardless of how helpful the information was to the Commission.
How Does the Program Protect Whistleblowers?
Understandably, many whistleblowers are not only concerned about the level of seriousness of the misconduct that they uncover, but also the consequences of reporting that misconduct. A whistleblower may worry about being identified, losing a job, being pushed out of an industry, or facing pressure to keep quiet.
Fortunately, the SEC whistleblower program is designed with these concerns in mind. The Dodd-Frank Act which established the program also included confidentiality protections, while the SEC protects whistleblower identities to the fullest extent possible barring limited exceptions. Further, if the individual retains files a Form TCR through an attorney, that individual can submit the report anonymously through the attorney.
Federal law gives whistleblowers two other key protections. First, it protects employees from retaliation in the workplace. SEC rules prohibit employers from discharging, demoting, suspending, harassing, or discriminating against an employee for reporting possible securities violations. Second, it protects a whistleblower’s ability to communicate directly with the SEC. Employers cannot take actions to stop a claimant from contacting Commission staff, including by enforcing or threatening to enforce a confidentiality agreement.
Those protections can be enforced in different ways. The SEC can bring an enforcement action against companies that violate federal provisions, including both general retaliation and specific efforts to impede communication between an individual and the SEC. Whistleblowers can also take action themselves if they submitted their report to the SEC prior to the retaliation occurring. In that event, the individual may be able to sue the company in federal court and seek double back pay with interest, reinstatement, and/or costs related to retaining an attorney and the litigation itself.
Why Whistleblowers Should Retain Counsel Before Coming Forward
The SEC whistleblower process can hinge on details that are easy to miss early on. When submitting a report to the SEC, whistleblowers should not just compile a loose collection of documents or suspicions. The submission should give the Commission a clear path: what happened, who was involved, why the conduct may violate securities laws, how investors were impacted, and what evidence exists to support all the claims. The same information can be stronger or weaker depending on how it was obtained, whether an exclusion applies, and how it is submitted.
Experienced counsel can help fix those issues before a filing is made. That includes crafting a clear narrative for the SEC, assessing whether the SEC will view the whistleblower’s information as original, identifying legal or corporate privilege concerns, preparing the Form TCR, and organizing supporting documents.
Miller Shah’s dedicated SEC whistleblower practice helps clients navigate the reporting process. For whistleblowers deciding whether to come forward, this guidance can be critical to ensuring that the information is submitted in a manner that best protects the whistleblower and has the highest likelihood of resulting in an enforcement action and an award.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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