Submitting Information to the SEC Whistleblower Program
Section B of the SEC Form TCR
Section D of the SEC Form TCR
Eligibility
For example, external auditors are generally not eligible to receive SEC whistleblower awards, especially external auditors who obtained the information during the audit of an issuer. However, an exception in the rules allows external auditors to become eligible in these circumstances when they report the information to a superior in the independent public accounting firm and the audit firm fails to promptly report the information to the SEC. Under the rules, there are many exceptions like this that allow otherwise ineligible whistleblowers to become eligible when certain steps are taken.
Whistleblowers should consult with an experienced SEC whistleblower attorney to determine their eligibility, or whether they can become eligible, for SEC whistleblower awards. This determination could result in a multi-million-dollar whistleblower award or nothing.
Maximize Your Award
For example, Section D, part 5b asks whether the whistleblower “reported this violation to his or her supervisor, compliance office, whistleblower hotline, ombudsman, or any other available mechanism at the entity for reporting violations?” While this question is important for determining certain whistleblower’s eligibility (e.g., 120-day exception), it may also impact a whistleblower’s award percentage. Per the SEC’s Final Rules, the whistleblower office may increase the amount of an award if the whistleblower “reported the possible securities violations through internal whistleblower, legal or compliance procedures before, or at the same time as, reporting them to the Commission.” As such, whistleblowers should strongly consider reporting internally to their company prior to reporting to the SEC. After reporting internally, however, whistleblowers are also incentivized to report to the SEC as soon as possible.
As another example of how to maximize a potential award, Section D, part 12 asks the whistleblower to provide “any additional information you think may be relevant.” This section offers whistleblower an opportunity to identify and emphasize other aspects of the claim that support an increased award percentage. For example, the SEC may issue a larger award to a whistleblower who experienced any “unique hardships…as a result of his or her reporting and assisting in the enforcement action.” This may include discussion on any retaliation the whistleblower experienced or perhaps the personal risks the whistleblower took in order to expose the fraud. See Rule 21F-6(a)(2)(vi). Again, whistleblowers should consider these factors prior to submitting a tip to the SEC.
Identify the Securities Law Violations for the SEC
Whistleblower should also describe why these violations are material. In the past five years, whistleblower have filed more than 18,000 tips with the SEC Whistleblower Office. The SEC will only invest its limited resources into the best tips. As such, whistleblowers should explain, in detail, why their tip warrants the SEC’s resources more than the thousands of other tips.
If a whistleblower is uncertain about a specific violation, he or she may benefit from reading prior SEC enforcement actions and consulting with an experienced SEC whistleblower attorney.
Provide Specific Evidence of the Violation
Notably, recent decisions have clarified the scope of company documents that a whistleblower may take to disclosure fraud to the government. In Erhart v. Bofi Holdings, Judge Bashant held confidentiality agreements do not trump federal whistleblower rights and whistleblowers are permitted to take an “appropriate” amount of company documents to disclose fraud to the government. According the order, a whistleblower’s evidence may be considered “appropriate” when it is carefully selected, specifically related to the violation, and accessible in the ordinary course of the employee’s duties. The judge warned, however, that “vast and indiscriminate” collection of company documents may not immunize the whistleblower from potential liability.
Finally, whistleblowers should not provide all types of evidence. For example, the SEC does not want information that may violate the company’s attorney-client privilege. If a whistleblower has questionable evidence, he or she should consult with an attorney and potentially notify the SEC to have its taint team handle the evidence.
Protect Your Identity
The SEC takes its responsibility to protect whistleblower’s identities very seriously. Whistleblowers can assist this effort by flagging any information that could point to them as the whistleblower. The SEC will then determine the best path to opening an investigation without tipping off the target that a whistleblower is involved.
Section F of the SEC Form TCR
If a whistleblower submits their tip anonymously, the whistleblower’s attorney is required to keep the whistleblower’s signed declaration and it will not be included in the filing with the SEC. In these circumstances, only the attorney’s signature in Section G is required.