On March 11, 2022, the US Securities and Exchange Commission (SEC) announced an award of $14 million to a claimant who published an online report alleging fraud against an unnamed company and its CEO. The claimant emailed this same information to the SEC three days later, and continued to reach out to SEC staff, which resulted in the SEC opening an investigation that led to a successful enforcement action and millions of dollars returned to harmed investors.
In granting the award, the SEC departed from the recommendation of the SEC Claims Review Staff (CRS), which had recommended denying the claim because the claimant (i) had initially shared information with the SEC informally, and without using the required Form TCR, (ii) had not provided information to the SEC “on a voluntary basis” because the SEC Staff attorney who ended up investigating the case had found the report online prior to being contacted by the claimant, and had initiated contact with claimant, and as a result (iii) had not provided information that led to the success of the relevant enforcement action.
The SEC Order agreed with the CRS’s conclusion that the claimant had not submitted a required Form TCR until four years after first providing information to the SEC, but determined that, because of the “unusual facts and circumstances” in this case, it would be “in the public interest and consistent with the protection of investors” for the SEC to exercise its discretionary authority to waive the Form TCR filing requirements. The SEC justified this exercise of discretion by noting that (i) the claimant emailed the report to the SEC within three days of posting it online and then soon after followed up with the SEC, (ii) the information in the claimant’s report was credible and of high quality, (iii) the claimant submitted the initial tip soon after the SEC’s Form TCR requirements went into effect, at a time when many individuals were unfamiliar with the filing requirements, and (iv) the claimant had been warned by an SEC staff member investigating the allegations that providing false information could lead to criminal penalties. The SEC Order also found that, although the specific SEC staff attorney investigating the case had independently come across the online report, the claimant had reached out to the SEC prior to being contacted by the SEC staff attorney, and so had voluntarily provided information to the SEC (and had also been an initial source of the report). As a result, the SEC found that the information provided by claimant (both in the report and in discussions with the SEC) had led to the SEC conducting an investigation and bringing a successful enforcement action, and so departed from the CRS recommendation and determined the claimant was eligible for a whistleblower award.
Since the whistleblower program began in 2012, the SEC has awarded approximately $1.2 billion in award to 249 individuals.