The Securities and Exchange Commission today announced its third highest award under the Dodd-Frank whistleblower program, as $3 million reward to a corporate insider who helped the agency crack a complex fraudulent scheme.
The announcement is a fitting way to celebrate the 5th Anniversary of the creation of the SEC program on Tuesday. Over the past five years, it has helped the U.S. Government collect more than $100 million in enforcement actions against companies and individuals engaged in misconduct that violates the federal securities laws. The program has paid out more than $50 million in financial incentives since the Whistleblower Office was opened in 2011.
Although we may never know more about this case due to the confidentiality provisions involved, the award determination does include a footnote that a second claimant was denied an award for not providing original information as it is defined by the SEC Rules and the Dodd-Frank Act. I’ll have to go back and check, but this may be the first instance of a securities whistleblower denied an award while another received one.
Footnote 2 indicated that the second claimant did not provide information that led to successful enforcement. Based on the laws cited, I suspect that the tip (a) happened during the investigation and didn’t significantly contribute to its success and (b) didn’t lead the investigation to inquire about different conduct than it was already investigating.
Of course, there are a few other options but this is probably the most likely one. Since the award determination release notes the delay before the individual reported the fraud to the U.S. Government, it is also possible that the tip came first but wasn’t sufficiently specific or credible enough to move the SEC to action. Additionally, it could be that the tip involved a second area not covered by the investigation and the government simply decided not to pursue an action against the company for it.
Nevertheless, this award denial re-emphasizes the importance of being the first one to provide a tip to the SEC or CFTC.