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SEC Awards More Than $4.1 Million to Whistleblower Despite a Finding that Whistleblower Unreasonably Delayed Reporting Misconduct

The SEC announced earlier today that it has awarded more than $4.1 million to a former company employee who “alerted the agency to a widespread, multi-year securities law violation and continued to provide important information and assistance throughout the SEC’s investigation.” Press Rel. No. 2017-222. To determine an appropriate award amount, the SEC considers a number of criteria that are outlined in the Rule 21F-6 of the Exchange Act, including (1) the significance of the information provided to the Commission, (2) the assistance provided in the Commission action, (3) law enforcement interest in deterring violations by granting awards, (4) participation in internal compliance systems, (5) culpability, (6) unreasonable reporting delay, and (7) interference with internal compliance and reporting systems. 17 C.F.R. § 240.21F-6.

In its Order, the Commission found that the whistleblower’s positive contributions were “somewhat offset” by the whistleblower’s “unreasonable delay in reporting the misconduct,” which is one of the criteria used to evaluate the award amount. However, the Commission noted that it did not weigh the whistleblower’s delay in reporting as heavily as it might have otherwise due to several mitigating factors. First, the Commission noted that a large part of the whistleblower’s reporting delay “occurred prior to the establishment of the whistleblower award program in July 2010,” and the Commission has generally not penalized whistleblowers as heavily due to the absence of the benefits provided by the program, such as monetary awards, anonymity, and heightened confidentially protections. Second, the Commission noted that the whistleblower “was a foreign national working outside the United States,” and therefore, it was unclear whether the whistleblower anti-retaliation provision of the Exchange Act would apply to the whistleblower.

When balancing the whistleblower’s contribution with the unreasonable delay in initially reporting the misconduct, along with the totality of the circumstances, the Commission found that the award determination was justified.

According to the press release, the agency has “now awarded more than $179 million to 50 whistleblowers since issuing its first award in 2012.” The awards come from an investor protection fund that was established by Congress and financed through monetary sanctions that are paid by violators of securities laws.

©2017 Drinker Biddle & Reath LLP. All Rights Reserved

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