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18 Aug 2017
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Whistleblowers and the SEC

“The Office of Whistleblower (SEC)” by the U.S. Securities and Exchange Commission

Whistleblowers are invaluable to the Securities and Exchange Commission (SEC) as they provide instrumental information to identify securities fraud and violations, facilitate the protection of investors, and safeguard the integrity of the market. The information whistleblowers provide to the SEC must be sufficient enough for the Commission to bring an enforcement action against the wrongdoers. In return, Congress has approved the SEC’s proposed award of ten to thirty percent of sanctions over $1 million.

So how does the process work? Individuals seeking to submit a tip as a whistleblower can do so online or by mail. According to the SEC’s FAQs, the person must voluntarily submit “original information about a possible violation of the federal securities law that has occurred, is ongoing, or is about to occur.” There is the option of submitting tips anonymously. However, those who choose this option must acquire counsel for representation. With each tip submission, the whistleblower will receive a TCR submission number which is subsequently reviewed by the SEC, their attorneys, and analysts. For cases that the SEC’s Division of Enforcement has already looked into, any new information will be handed to the staff working on that team. For a new investigation to be initiated, the SEC needs enough information to bring an action. If the information provided is not sufficient to open an investigation, it will be kept until further evidence is brought to light.

What is considered original information? Typically, original information is information that the SEC (or the public) does not have prior knowledge of. The SEC requires sources and data that are credible and very specific. Individuals who have an inkling that their co-workers are committing securities fraud is not sufficient. Instead, whistleblowers need to provide information like examples of transactions or proof of communications. The SEC also advises whistleblowers to provide any and all information they have available. Whistleblowers are also eligible for a reward if they notify their company’s in-house compliance team and then notify the SEC within 120 days of an in-house report.

So far in 2017, the SEC has awarded around $158 million to 46 whistleblowers. In April, the SEC awarded $4 million to a whistleblower who delivered specific insider information of misconduct to the Commission. The Commission notes that “whistleblowers with specialized experience or expertise can help us expend fewer resources in our investigations and bring enforcement actions more efficiently.” Recently, on July 27, 2017 the SEC awarded $1.7 million to a whistleblower and company insider who provided the SEC with “critical information to help stop fraud that would have otherwise been difficult to detect.” Cases such as these illustrate why whistleblowers are invaluable resources to the Commission.

For further information see section 21F of the Securities Exchange Act of 1934 which provides the provisions for whistleblowers.

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