Monday, August 13, 2012

SEC Senior Official Outlines Workings of Whistleblower Program


The Chief of the SEC’s Office of the Whistleblower, Sean McKessy, has advised how the investigative process works upon the receipt of a whistleblower tip and more broadly described the workings of the Commission’s whistleblower program. He said that every whistleblower tip received by the Commission is evaluated very soon after being received and is looked at by at least two SEC staff attorneys. The Chief also advised potential whistleblowers to be more specific, credible and timely in the information they provide and also to send in any updates or developments that occur. General claims of the commission of securities fraud do not give SEC investigators much to go on. He said that SEC staff will be much better able to pursue an investigation of a tip if they have specific examples, details or transactions to examine. Whistleblowers should also be aware that that the federal securities laws can be very complex and that SEC enforcement actions can take years to be finalized.

Form TCR should be used in submitting a tip, which is required for a person to be considered a whistleblower for the SEC program. Form TCR contains declarations of eligibility that must be signed off on. Form TCR can be submitted anonymously, he noted, but if it is submitted anonymously the whistleblower must be represented by counsel.

When Form TCR is submitted to the SEC, staff attorneys, accountants, and analysts will review the data submitted to determine how best to proceed. If it is a matter the Enforcement Division is working on already, the Form TCR gets forwarded to the staff handling that matter. Often a Form TCR gets sent to the experts in another Division at the SEC for their evaluation.

Even if the tip does not cause the SEC to open an investigation right away, said the SEC official, the information provided is retained and may be reviewed again in the future if more facts come to light and a picture becomes clearer.

If the submission causes the SEC to open an investigation, enforcement staff will follow the facts to determine whether to charge an individual, entity or both with securities violations. These investigations can take months or even years to be concluded. Further, even after the investigation is complete and the Commission decides to file a case, the case may be litigated, which may mean significant additional time before the case is resolved. Thus, the Chief asked whistleblowers to understand that it can be a long time before a resolution to the matter is final.

That said, once a matter in which over one million dollars in sanctions is ordered is final, The SEC will post a Notice of Covered Action on its website. The whistleblower would have 90 days to submit a Form WB-APP to apply for an award. The SEC will respond promptly to acknowledge receipt. From there, the SEC will go into the deeper analysis required by the Commission's rules to determine whether to pay an award, and, if so, how much.

SEC rules describe seven factors that the Commission will use to determine whether to increase or decrease the percentage of an award. The four factors that may increase an award are: (1) the significance of the information provided by the whistleblower, (2) the assistance provided by the whistleblower (3) any law enforcement interest that might be advanced by a higher award, and (4) the whistleblower's participation in internal compliance systems. There are three factors that can decrease the percentage of an award:  (1) culpability, (2) an unreasonable reporting delay by the whistleblower and (3) interference with internal compliance and reporting systems. The Chief noted, however, that even if of all these negative factors apply, a whistleblower may still be entitled to an award higher than the ten percent minimum.

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