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.