The Importance of SEC Whistleblowers

In addition to deservedly making Margot Robbie a star, The Wolf of Wall Street exposed the unseemly underbelly of the financial markets from the 80s into the 90s – since then certain oversight and compliance mechanisms have been installed by Congress to prevent unscrupulous financial entities from ripping off its customers, some of which lavishly incentivize SEC whistleblowers to step forward with insightful information to blow the whistle and obtain an SEC whistleblower award, which in aggregate has exceeded a billions dollars.

In the realm of financial markets and securities, transparency, and accountability are paramount. The U.S. Securities and Exchange Commission (SEC) serves as a guardian of integrity in these markets, striving to maintain a level playing field for investors and ensure fair practices. One crucial component in the SEC’s arsenal is the whistleblower program, which empowers individuals to come forward with vital information about securities violations and file a TCR with an SEC whistleblower attorney. In this blog, we delve into the role and significance of whistleblowers in SEC enforcement actions, shedding light on their contributions to uncovering misconduct and upholding the principles of financial justice.

Understanding the Role and Importance of an SEC Whistleblower in SEC Enforcement Actions

The SEC’s whistleblower program was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act to incentivize individuals with knowledge of securities violations to report their findings. The SEC whistleblower program provides whistleblowers with both protection against retaliation and financial rewards for their information, encouraging them to play a pivotal role in maintaining the integrity of financial markets. It was recognized that to stop financial fraud in a n industry with trillions of dollars, well placed individuals need to be properly protected and incentivized to come forward with SEC whistleblower rewards.

The SEC Whistleblower Program encompasses a broad spectrum of federal securities violations, reflecting its comprehensive commitment to upholding market integrity. This expansive scope of actionable areas includes, but is not confined to, accounting fraud, investment fraud, Ponzi schemes, foreign bribery, deceptive securities offerings, improper revenue recognition, deficient internal controls, and breaches of auditor independence regulations. Further, the failure to keep an audit trail and preserve all communications is by itself a violation that has resulted in hundreds of millions of dollars of fines and whistleblower awards.

SEC regulations cover any systemic activities that prioritize the interests of financial institutions over those of their clients. In recent years, the SEC has placed significant emphasis on ensuring the establishment of a thorough audit trail and eradicating clandestine communications. This resolve has resulted in substantial penalties, amounting to nearly $1 billion in SEC fines in 2023, accompanied by hundreds of millions of dollars in SEC whistleblower awards for the courageous individuals who disclosed these violations.

Key Role of Whistleblowers in SEC Enforcement Actions

The SEC’s mission is to protect the investing public, maintain fair and efficient markets, and facilitate capital formation. An SEC whistleblower plays an integral role in fighting corruption and supporting the SEC’s mission. According to the SEC, a whistleblower “voluntarily provides the SEC with original information in writing about a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur.”

Whistleblowers aid the SEC by providing information and evidence about potential securities laws violations that may otherwise go unnoticed or be inaccessible to the SEC. The SEC can use this information to investigate and uncover instances of fraud, wrongdoing, and other federal securities laws violations.

Examples of potential misconduct and violations include, but are not limited to:

1. Early Detection of Wrongdoing: Whistleblowers often possess insider knowledge of securities violations that may otherwise go undetected. Their information can be a catalyst for initiating investigations into fraudulent practices, market manipulation, insider trading, and other misconduct.
2. Gathering Crucial Evidence: Whistleblowers provide the SEC with invaluable evidence that helps build strong cases against wrongdoers. This evidence can include documents, emails, internal communications, and other information that establishes the existence of unlawful activities. It is important to only gather evidence under the direction of a qualified SEC whistleblower lawyer. You should not access information that you would not ordinarily be entitled to. Further, even if you are normally entitled to it, you should try to do so in a manner that would not create suspicion.
3. Insider Perspectives: Whistleblowers can provide insights into complex financial transactions, market practices, and industry dynamics that might be unfamiliar to regulators. Their perspectives can greatly assist the SEC in understanding the intricacies of potential violations.
4. Expanding Investigative Reach: The SEC’s resources are limited, and investigating every potential violation can be challenging. Whistleblowers extend the SEC’s reach by bringing forward information about violations that the agency might not have otherwise uncovered. The information can help the SEC prioritize resources as insiders could have an understanding about the scope of the malfeasance, dollar amounts at stake, likely harm to investors and thus triage the cases appropriately.
5. Deterrence and Enforcement: The mere existence of a robust whistleblower program serves as a deterrent to potential wrongdoers. The prospect of whistleblowers coming forward with evidence encourages individuals and entities to think twice before engaging in fraudulent activities.

SEC whistleblowers can come from within or outside of an organization. For example, they may be employees, former employees, consultants, contractors, or shareholders, but the ones that have been successful in obtaining SEC whistleblower awards in the past are believed to be individuals who are well placed and in a position to provide information during the course of the investigation. The article says “believed” because these courageous insiders can stay anonymous from start to finish with the use of an SEC whistleblower law firm.

Financial SEC Whistleblower Rewards and Protection for Whistleblowers

The SEC’s whistleblower program offers financial incentives to individuals who provide original information that leads to successful enforcement actions resulting in monetary sanctions exceeding $1 million. Whistleblowers can receive between 10% and 30% of the total amount collected. Additionally, the program provides strong protections against employer retaliation, ensuring that individuals can report violations without fear of adverse consequences.

Some of the largest recent SEC whistleblower awards include the following:

• $279 million in 2023
• $110 million in 2021
• $114 million in 2020
• $104 million in 2023
• $50 million in 2021

Preserving Anonymity Through the Use of an SEC Whistleblower Attorney

Recognizing the potential hazards that whistleblowers may encounter, the SEC Whistleblower Program permits individuals to submit tips confidentially, provided they are under the legal representation of a whistleblower law firm like the noted SEC whistleblower law firm Brown, LLC – a firm led by a former FBI Special Agent. This allows individuals who intend to disclose crucial information to do so without the apprehension of reprisal, thereby ensuring the protection of both their anonymity and their occupational security.

Whistleblowers are the unsung heroes in the fight against securities violations and financial misconduct. Their courage and willingness to stand up for transparency and fairness empower the SEC to effectively enforce securities laws and maintain the integrity of financial markets. At Brown, LLC, we recognize the critical role whistleblowers play in upholding financial justice, and we are committed to supporting and advocating for individuals who come forward with information about securities violations. If you have information about securities fraud and are considering blowing the whistle, our experienced legal team is here to provide guidance, protection, and support throughout the process and we’re only paid if we win your case. Contact us today to learn more about your rights, options, and the significant impact you can make.