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SEC Whistleblowing – Frequently Asked Questions

February 4, 2022

 

The Securities and Exchange Commission (SEC) has awarded hundreds of millions of dollars to SEC whistleblowers. The SEC’s robust whistleblower program investigates a wide variety of securities violations, including pump-and-dump schemes, boiler rooms, publishing false information to manipulate stock prices, using restricted funds for securities, breaches of fiduciary duty (including insider trading), and more. An experienced whistleblower law firm can maximize a whistleblower award and protect their anonymity by filing confidentially through an SEC whistleblower attorney. Before starting the whistleblower process, here are some things to consider:

 

What qualifies as a material violation of securities laws?

Because the SEC receives many more tips than it can investigate, you should first candidly discuss your proofs with an SEC whistleblower law firm who will help you evaluate the strength of your allegations. Your counsel can refine your knowledge into the most specific and credible allegations concerning material violations of federal securities laws which is a predicate for SEC action, and thereby increase the likelihood of SEC intervention.

So what makes a violation “material”? Whether a violation is considered material is correlated with its potential to deceive or otherwise harm investors. For example, an issuer’s failure to disclose information that would affect a reasonable investor’s evaluation of the company’s stock is considered material. The SEC will be more likely to pursue cases involving substantial misrepresentations or omissions that severely impact the finances of numerous investors. Due to the SEC’s limited resources, it is critical for experienced counsel to draft a focused and digestible complaint for the SEC to review and prosecute.

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Who is eligible for an SEC Whistleblower Award?

Whistleblowers must voluntarily submit original information to be eligible for an award. Information already known to the SEC, whether from an earlier whistleblower or from the SEC’s own investigations, will not yield a reward. Filing as soon as possible is therefore crucial. Furthermore, the SEC will only pay out awards if they obtain monetary sanctions exceeding $1 million.

While anyone may report to the SEC, the individual’s background may also determine their eligibility to receive an award. If you have compliance responsibilities in the target company, the SEC may deem you ineligible for an SEC whistleblower award. There are notable exceptions to this general rule. For example, an internal compliance employee or auditor may still be eligible for an award if:

  • • they reasonably believe the disclosure is necessary to prevent conduct likely to cause “substantial injury” to the entity or to investors;
  • • they reasonably believe the entity is engaging in “conduct that will impede an investigation”; or
  • • at least 120 days have passed either since they properly disclosed the information internally, or since they obtained the information under circumstances indicating that the entity’s officers already knew of the information.

External auditors who discover material violations during their audit of the company can also gain eligibility under the first two exceptions. In addition, external auditors do not need to wait 120 days after internal disclosure, and may be eligible for an SEC whistleblower award if their own firm failed to promptly report to the SEC after becoming aware of the violation.

What factors influence whistleblower award determinations?

Whistleblowers may receive 10% to 30% of the amount recovered by the SEC. The exact allocation depends on the value of the whistleblower’s contribution and whether they have unclean hands. For example, the SEC may reduce the award if a whistleblower is unreasonably late to report violations, or if the whistleblower actually participated in the violations they’re reporting. On the flip side, the SEC may increase the award if the whistleblower and their counsel provide substantial evidence and other assistance.

 

It’s important to work with experienced whistleblower counsel to maximize your potential for an SEC award. If you think you have information that may be a violation of the securities laws, contact former FBI Special Agent Jason T. Brown and his SEC whistleblower law firm for a free, confidential consultation at 877-561-0000 or info@jtblawgroup.com. Consultations can be arranged after-hours, on weekends, and in-person at our office near downtown Manhattan.

 

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