Will the SEC Whistleblower Program Lead to More Payouts?

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The SEC just announced the first payout from their new whistleblower program. According to a press release, the whistleblower who helped the Securities and Exchange Commission stop a multi-million dollar fraud is set to take home about $50,000 in reward for evidence of securities fraud.

The award is 30 percent of the amount collected in an SEC enforcement action against the perpetrators, representing the max percentage payout allowed by the whistleblower law. According to the law, if info obtained by a whistleblower leads to an SEC enforcement action in which more than $1 million in sanctions is ordered, whistleblowers can be awarded anywhere from 10 percent to 30 percent of the money recovered.

The whistleblower’s help in the current action led to $1 million in court sanctions, of which about $150,000 has been collected so far.

The SEC would not identify the first award recipient, but they did acknowledge that the person provided documents and other significant information that allowed the SEC’s investigation to move full speed ahead, preventing additional fraud from occurring. Considering the access to direct information, it’s very likely that the whistleblower was an employee.

But what are the implications for those working at a broker-dealer and worried about reporting a similar situation for fear of their job? It remains to be seen. But the 2010 Dodd-Frank Act that authorized the whistleblower program does include anti-retaliation employment protections for whistleblowers and provisions to protect their identity.

In an earlier news story, eFinancialCareers reported that the new whistleblower program might result in firms weakening employment contracts. Scott Oswald, managing principal at The Employment Law Group law firm, explained, “Most firms don’t relish the idea of close scrutiny of their practices that any sort of contract dispute might bring.” In an interview with eFinancialCareers, he noted that the fear of counterclaims for wrongful termination in violation of the anti-retaliation provisions contained in the Sarbanes Oxley Act and Dodd Frank could make broker-dealers not enforce non-competition agreements.

The SEC’s Office of the Whistleblower opened in August of 2011. According to Sean McKessy, Chief of the SEC’s Whistleblower Office, since the program was established, the office gets about eight tips a day. McKessy added, “The fact that we made the first payment after just one year of operation shows that we are open for business and ready to pay people who bring us good, timely information.”

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