Frequently Asked Questions (FAQs)
How to qualify for rewards as an SEC Whistleblower
What is the Securities and Exchange Commission (“SEC”) whistleblower program?
The SEC whistleblower program is a part of the Wall Street reform law known as the Dodd-Frank Act. The Dodd-Frank Act became law on July 21, 2010.
In passing the Dodd-Frank Act, Congress required the Securities and Exchange Commission to create an SEC Whistleblower Office. It also required the SEC to publish rules to establish the filing procedures for whistleblowers to obtain financial rewards if their original information resulted in sanctions against a wrongdoer.
What are the major provisions of the Dodd-Frank Act’s SEC whistleblower law?
The Dodd-Frank Act included the following significant reforms for whistleblowers who disclosed potential violations of the Security and Exchange Act, the Foreign Corrupt Practices Act and all other laws, rules, and regulations administered or enforced by the SEC:
- The ability of qualified whistleblower to obtain a financial reward, similar to other qui tam reward laws, including the False Claims Act and the IRS whistleblower program.
- Financial rewards are available to non-U.S. citizens who blow the whistle on potential securities frauds committed by publicly traded companies outside the United States, including violations of the Foreign Corrupt Practices Act.
- A broad “related action” provision permitting for the payment of rewards based on sanctions obtained from other law enforcement agencies
- The requirement that the SEC establish a Whistleblower Office
- The requirement that the SEC strictly protect the confidentiality of whistleblowers, and permit anonymous filings
- A strong anti-retaliation law that allows whistleblowers to file retaliation cases in U.S. District Court and obtain double back wages
What rewards are available under the SEC whistleblower law?
The SEC whistleblower law requires that the SEC to pay a qualified whistleblower, who provides original information to the SEC regarding a violation of any of the securities laws enforced by the SEC and/or a violation of the Foreign Corrupt Practices Act, a financial reward.
The reward cannot be lower than 10% of the sanctions obtained by the SEC, or higher than 30%. More than one whistleblower can qualify for a reward, but under no circumstances can the total amount of awards paid be higher than 30% of the sanctions obtained.
Whistleblowers become eligible for a reward once the SEC issues sanctions based on the whistleblower’s information of $1 million or more. Whistleblowers are also entitled to “related action” awards, once the $1 million threshold is met.
What is a “related action” whistleblower award?
The SEC whistleblower program will also pay rewards based on sanctions obtained from other law enforcement agencies. This “related action” rule only kicks-in when the SEC itself collects over $1 million in sanctions. After that, if another law enforcement agency, such as the Department of Justice or Federal Reserve Board, issues sanctions to a wrongdoer based on the same original information provided to the SEC, the whistleblower can collect a reward based on the DOJ or FRB sanctions.
The Commodity Exchange Act and the False Claims Act also permit the payment of related actions awards. And the IRS whistleblower law has a “related action” provision,” and awards can be issued even if the Department of Justice issues the sanction in a tax case.
How does a whistleblower file the initial information that is the basis for a reward?
Filing an official complaint form with the SEC’s Office of the Whistleblower is the very first step a whistleblower should take in notifying the SEC about a potential violation. The official form is known as a “TCR” and stands for “tip, complaint, and referral.” The form can be filled out on-line or faxed.
It is to a whistleblower’s advantage to file this form as quickly as possible. Because rewards can only be paid based on “original” information, the whistleblower who first alerts the Commission to a potential violation stands the strongest chance of obtaining the largest reward.
Supporting information can and should be filed with the TCR.
After that, if the SEC is interested in the case submitted by the whistleblower, the SEC will initiate an investigation. You can also file TCRs concerning ongoing cases. The whistleblower need not trigger the investigation but needs to provide original information that is used by the Commission as the basis of any ultimate sanction.
If the SEC sanctions an individual or company $1 million or more, the case then moves to the second stage, the filing of the formal APP award application.
Can this initial application and supporting information be submitted anonymously to the SEC?
Yes. See the FAQ on how to file an anonymous claim as an SEC whistleblower.
After filing the TCR, are there other forms I must file with the SEC to qualify for a whistleblower reward?
Every month the SEC publishes a list of cases for which whistleblower rewards are potentially available. These are cases in which the SEC sanctioned a wrongdoer $1 million or more. This list is known as the Notice of Covered Action.
If a case for which a whistleblower filed a TCR complaint is on the Notice of Covered Act list, the whistleblower has 90-days to submit a formal application for a reward. This official application is known as an APP.
The APP application is the document that is the basis for a reward. In the App application, the whistleblower should provide the SEC with all relevant information explaining why he or she is eligible for a reward. The whistleblower should also address various factors explaining why a reward should be increased, or not decreased.
If a whistleblower had filed the TCR anonymously, the whistleblower must reveal his or her identity when submitting the APP form. The SEC needs to ensure the whistleblower is not a disqualified person, such as an employee of the Security and Exchange Commission. The SEC may also request the proof the anonymous whistleblower had signed a confidential TCR form before the whistleblower’s attorney filed the anonymous complaint. In addition, it may also require documentation regarding proof of identity.
A whistleblower must file the APP application and all supporting materials with the SEC Office of the Whistleblower.
The SEC rules require that the identity of the whistleblower is kept in the strictest confidence. This is the case even if identity of the whistleblower is revealed to the SEC as part of the APP application.
How does the SEC process the APP application?
The SEC has created a “Claims Review Staff” (“CRS”) independent of the Office of the Whistleblower, to review all APP applications. The CRS will often obtain affidavits from the SEC investigators responsible for the underlying enforcement action. These investigators know who the “real” whistleblowers were, and what information they relied upon to take the enforcement action. Their statements, which are not public, usually form the basis for the CRS to issue an initial decision.
Once the whistleblower obtains a copy of the initial ruling from the CRS, he or she can accept that ruling. If there is no appeal of the initial ruling of the CRS, and if the SEC Commission approves that initial ruling, the whistleblower cannot challenge the SEC’s decision in court.
A whistleblower can seek to review the documentation relied upon by the CRS. This material is only provided to the whistleblower if he or she signs a nondisclosure agreement, as the SEC maintains that this documentation is part of their confidential decision-making process.
The whistleblower can file an internal appeal of the decision of the CRS. The whistleblower can also request a meeting with employees of the Whistleblower Office or the CRS to discuss the claim. After an appeal of the initial decision of the CRS, the Commission staff will finalize its recommendation to the full SEC Commission.
The full SEC Commission reviews the CRS’s final recommendation. If no Commissioner requests a vote on the recommendation, the recommendation becomes final. The Commission can also take jurisdiction over the matter and issue a final decision based on the record.
Is the final decision of the SEC of a whistleblower reward claim subject to judicial review?
Yes. A final decision of the SEC can be appealed to the US Court of Appeals. The time limit to file the appeal is 30-days. The Administrative Procedure Act, 5 USC § 706, governs all appeals of SEC decisions. The record created before the SEC is the basis of the appeal.
Are the SEC’s decisions on whistleblower reward applications public?
The SEC publishes its decisions granting or denying rewards. The SEC publishes decisions in a manner that protects the identity of the whistleblower. Generally, the name of the whistleblower is not in the SEC’s published decisions. Additionally, the company for which the whistleblower exposed is not named.
Where can I obtain more information on the Dodd-Frank Act?
The New Whistleblower’s Handbook contains extensive information on the Dodd-Frank Act protections. Rule 1 covers confidentiality and anonymity; Rule 8 includes information on the reward provisions of the Securities and Commodity Exchange Acts, Rule 9 covers the reward provisions of the Foreign Corrupt Practices Act, and information on retaliation is throughout the Handbook.
Where can I obtain legal assistance in filing a Dodd-Frank Act case?
Please fill out one of the Kohn, Kohn and Colapinto’s consultation request form describing your case.