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SEC Limits Whistleblower’s Award Over Culpability, Delay

SEC Limits Whistleblower’s Award Over Culpability, Delay

SEC Limits Whistleblower’s Award Over Culpability, Delay

By Martin O’Sullivan of Law360.com

The U.S. Securities and Exchange Commission has determined that a whistleblower will receive a fifth of any monetary sanctions collected in an enforcement action sparked by the tipster’s revelations, saying the cap is appropriate due to the whistleblower’s delayed reporting and connection to the violations.

The SEC on Tuesday said that the unnamed tipster would receive 20 percent of any sanctions in the action for providing the information that launched the agency’s investigation, saying the whisteblower did not challenge a preliminary finding regarding the tipster’s lag in reporting and connection to the securities law breach. Per the regulator’s rules for its 5-year-old tipster program, no details on the underlying enforcement action were released.

“The claims review staff reduced the award below from what it might otherwise have been because of both the claimant’s culpability in connection with the securities law violations at issue … and the claimant’s unreasonable delay in reporting the wrongdoing,” the SEC said.

Whistleblower awards range from 10 to 30 percent of sanctions over $1 million, according to the SEC’s Office of the Whistleblower. Enforcement actions using whistleblowers’ tips have since reaped more than $935 million since the program began in 2011, the SEC said.

The largest award to date was granted in September 2014, when the SEC announced it would give more than $30 million to a foreign resident who provided key original information that led to a successful enforcement action.

The next largest award, clocking in at $22 million, was granted in August to a former Monsanto Co. financial executive for reporting accounting fraud.

The SEC has received more than 10,000 tips from across the U.S. since 2011, with California, New York and Florida residents contributing the most tips, according to the agency’s website.

The Dodd-Frank Act, passed in July 2010, mandated that the SEC pay whistleblower awards to anyone who provides information that leads to monetary sanctions of over $1 million. The SEC’s final rules implementing the program took effect in August 2011, and the program paid out its first award a year later.

The program may be in peril, however, according to a memo circulated in February among House Republicans, which said that a provision of the proposed Financial CHOICE Act — legislation intended to rewrite Dodd-Frank — would prohibit those who were involved in the wrongdoing but not criminally charged from receiving an award.

Source: Law360.com


The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.