Thursday, July 31, 2014

SEC Whistleblower Banks $400K+ Award

[This story previously appeared in Securities Regulation Daily.]

By Amy Leisinger, J.D.

The SEC today announced an award of more than $400,000 for a whistleblower who reported a fraud to the SEC after the company failed to address the issue. According to the Commission, the whistleblower provided the Commission with specific and credible information and gave the agency the opportunity to complete its investigation quickly following the company’s failure to internally address the whistleblower’s numerous attempts to rectify the matter (Release No. 34-72727, July 31, 2014).

In a press release, Sean McKessy, chief of the SEC’s Office of the Whistleblower, said: “The whistleblower did everything feasible to correct the issue internally. When it became apparent that the company would not address the issue, the whistleblower came to the SEC in a final effort to correct the fraud and prevent investors from being harmed.”  

Whistleblower award. Last year, the SEC’s Claims Review Staff preliminarily determined that the whistleblower’s award claim should be denied because the information did not appear to have been “voluntarily” provided as required by the whistleblower rules. According to the determination, the information was imparted as a result of a prior inquiry by a self-regulatory organization. However, following a detailed response by the claimant describing the order of events and the individual’s long-term, diligent efforts to correct the underlying misconduct, the SEC decided to waive the “voluntary” requirement of Rule 21F-4(a) based on extenuating circumstances. The award recognizes the claimant’s efforts both to protect investors and to report the violation internally, the Commission explained.