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Bounty Hunters: SEC Pays Record Amount to Whistleblower

What (the Anticipation of) Whistleblowers Can Do For Your Company Background Image

On May 5, 2023, the Securities and Exchange Commission (“SEC”) issued an order (the “Order”)1 providing that it would pay a $279 million award to a whistleblower who assisted with the enforcement of an action by the SEC and two other related actions brought by unnamed agencies. While the whistleblower’s (“Whistleblower 1”) information did not cause the SEC to initiate an investigation into the reported activity, the information caused the SEC to expand the scope of its investigation. In addition, Whistleblower 1 reportedly provided “substantial, ongoing assistance” to the SEC throughout the action. The Order reaffirms the SEC’s willingness to pay substantial whistleblower awards and may lead to increased whistleblower activity. Public companies should revisit their policies and controls for handling internal whistleblower complaints and encourage internal reporting of potential whistleblowers’ concerns.

The SEC’s Award to Whistleblower 1 & Denial of Awards to Whistleblowers 2 and 3

The SEC maintains a whistleblower program whereby it pays awards to whistleblowers who voluntarily provide the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1,000,000.2 Under Rule 21F-4(c), information is considered to lead to the successful enforcement of a judicial or administrative action if:

(1) the information was “sufficiently specific, credible, and timely to cause the staff to commence an examination, open an investigation, reopen an investigation that the [SEC] had closed, or to inquire” into different conduct as part of a current investigation;

(2) the whistleblower provides information about conduct already under examination or investigation, and the submission significantly contributed to the success of the action; or

(3) the whistleblower reported original information through an entity’s internal whistleblower, legal, or compliance procedures before or at the same time the whistleblower reported the information to the SEC, the entity later provided the information to the SEC or provided the results of an audit or investigation initiated in response to that information, and the information the entity provided to the SEC satisfies either (1) or (2).3

At more than double the size of the SEC’s $114 million whistleblower award issued in October 2020, the $279 million award to Whistleblower 1 is by far the largest award issued in the history of the SEC’s whistleblower program. The SEC protects the confidentiality of whistleblowers; thus, the Order is heavily redacted and does not disclose the nature of the underlying actions, the size of the monetary sanctions collected, or the percentage of monetary sanctions in the underlying actions awarded to the whistleblower. Yet it is apparent from the Order that: (1) the information provided by Whistleblower 1 was “original” and “significant[;]” (2) although the information did not prompt the opening of the SEC’s investigation, the information caused SEC Enforcement Division staff to expand the scope of their investigation, including the scope of the misconduct charged; (3) Whistleblower 1 “provided substantial, ongoing assistance, which included multiple written submissions, communications, and interviews[;]” and (4) Whistleblower 1’s information “saved the [SEC] significant time and resources[.]”4 Whistleblower 1’s information, however, “only related to certain of the conduct that the [SEC] ultimately charged[.]”5

Under Rule 21F-11(a) of the Securities Exchange Act of 1934, if a whistleblower is eligible to receive an award following a SEC action that results in monetary sanctions totaling more than $1,000,000, the whistleblower may also be eligible to receive an award based on the monetary sanctions collected from a related action. 17 C.F.R. § 240.21F-11(a). Here, Whistleblower 1 received an undisclosed percentage of the monetary sanctions collected in the SEC’s enforcement action and in two other related actions brought by another, unnamed agency.

The Order also denied two other whistleblowers’ (“Whistleblower 2” and “Whistleblower 3”) requests for awards for the reasons stated below.

  • Whistleblower 2: The SEC concluded that Whistleblower 2’s information did not either: (1) cause the SEC to commence an examination, open or reopen an investigation, or inquire into different conduct as part of a current SEC examination or investigation in accordance with Rule 21F-4(c)(1); or (2) significantly contribute to the success of a SEC judicial or administrative enforcement action as required by Rule 21F-4(c)(2). Indeed, according to the SEC, none of Whistleblower 2’s information “was used in, nor had any impact on, the charges brought” in the SEC’s action, which contained no allegations on the subject of Whistleblower 2’s information.6 And because Whistleblower 2 submitted information to the SEC before reporting the information to the company, Rule 21F-4(c)(3) did not apply.
  • Whistleblower 3: The SEC similarly concluded that Whistleblower 3’s information did not: (1) cause the SEC to commence an examination, open or reopen an investigation, or inquire into different conduct as part of a current SEC examination or investigation in accordance with Rule 21F-4(c)(1); or (2) significantly contribute to the success of a SEC judicial or administrative enforcement action as required by Rule 21F-4(c)(2). According to the SEC, Whistleblower 3’s information “was unrelated” to the SEC’s investigation and the conduct ultimately charged in the SEC action.7 Whistleblower 3’s contention that he or she “displayed great dedication and perseverance in providing his/her information [was] immaterial” to the SEC’s determination that Whistleblower 3 failed to provide qualifying information that would entitle him or her to an award under Rule 21F-4.8

Though the Order’s sizable award to Whistleblower 1 has drawn significant attention, the Order’s denial of Whistleblower 2 and Whistleblower 3’s requests for awards is similarly noteworthy. By refusing to order awards to Whistleblower 2 and Whistleblower 3, the SEC signaled its commitment to providing awards to those who provide only material information related to the misconduct investigated by the SEC. Simply reporting alleged misconduct about the company under investigation is insufficient.

What Does the SEC’s Order Mean for You?

The size of the SEC’s award to Whistleblower 1 will likely spark an uptick in whistleblower activity. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, noted that the size of the award “the highest in [the] program’s history – not only incentivizes whistleblowers to come forward with accurate information about potential securities law violations, but also reflects the tremendous success of [the] whistleblower program[.]”9 Grewal emphasized that the award demonstrates that there is a “significant incentive for whistleblowers to come forward with accurate information about potential securities law violations.”10

Public companies should revisit their policies and procedures to make sure that they clearly set out the reporting process (such as anonymous hotlines, email, or dedicated reporting platforms) and protections for whistleblowers (including clear policies prohibiting retaliation). These policies should be easily accessible to all employees and made a regular part of employee training and other routine communications. Management should be trained on how to handle and respond to whistleblower reports and to ensure they understand the significance of protecting whistleblowers. And the Audit Committee and legal department should be prepared to promptly and thoroughly investigate whistleblower complaints, and take appropriate responsive action. By implementing these measures, public companies can create an environment where employees feel safe and supported in reporting wrongdoing internally, ultimately fostering a culture of transparency, integrity, and ethical behavior.

Public companies should recognize that the SEC does not require a whistleblower to report internally through a company’s internal compliance program to be considered for an award; however, the SEC has stated that participation in an internal compliance program may be considered in determining the appropriate award amount.11 And if a whistleblower reports the information to the SEC within 120 days of reporting the information internally, the SEC will utilize the internal reporting date as the date reported to the SEC and allow the whistleblower to benefit from any information uncovered in the company’s investigation into the whistleblower’s allegations.12 Accordingly, public companies may begin to see increased reporting activity through their internal compliance channels and should work closely with counsel to ensure that any allegations of securities violations are properly investigated.

Lastly, employers also should review their standard separation and release agreement forms to ensure they contain language specifically recognizing that the former employee is not waiving rights to receive an award from the SEC for information provided. Absent such language, the SEC may allege interference with whistleblower rights, which ultimately could impact award amounts, among other penalties.

1Exchange Act Release No. 97438 (May 5, 2023).
217 C.F.R. § 240.21F-3(a).
317 C.F.R. § 240.21F-4(c).
4Order at 5–6.
5Id. at 6.
6Id. at 7.
7Id. at 10.
8Id. at 11 n.29.
9Press Release, Sec. & Exch. Comm’n, SEC Issues Largest-Ever Whistleblower Award (May 5, 2023),
11Frequently Asked Questions, Office of the Whistleblower, Sec. & Exch. Comm’n, (last updated Apr. 6, 2023).

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.