SEC Whistleblower Compensation Program

The Securities Exchange Commission pays awards to whistleblower whose tips result in more than $1 million in fines. The impetus was the 2008 collapse of the "too big to fail" Wall Street banks as well of the revelation of numerous Ponzi schemes, the largest of which was headed by Bernie Madoff. The Dodd-Frank Wall Street Reform and Consumer Protection Act made whistleblower compensation and protection statutory. The SEC implemented the Act through Rule § 240.21F-1 through § 240.21F-16.

The Whistleblower must have original information

The information must be derived from independent or analysis of a whistleblower which is not otherwise known to the SEC. It cannot be exclusively derived from an allegation made in a judicial or administrative hearing, in a government report, hearing, audit, or investigation, or from the news media, unless a whistleblower is the source of the information.

It is not required that the whistleblower have enough information to prosecute. There can be multiple whistleblowers on a single case if they each have provided original information.

Amount of award

The award will be between 10% and 30% depending of the quality and materiality of the information. If there are multiple whistleblowers, the award will be shared. Payment is subject to collection of the penalty or fine by the SEC.

Participation in the fraud

Often the whistleblower has some participation in the fraud, perhaps merely ignoring it for a period of time. If the whistleblower is culpable under the securities laws, there is probably no award. This is a complicated area and the facts of your case should be reviewed by a lawyer.

Remaining anonymous

Even though the whistleblower is protected, the practical result of failing to be a "team player" is the end of your career at the company. It is therefore critical to remain anonymous. The best way is to file anonymously through an attorney. If the SEC fines the company, your identity will be discovered.

Attorney fees

The SEC opposed many important features of Dodd-Frank including the mandatory payment of whistleblower fees. In the proposed rules, the SEC estimates that a securities lawyer will charge around $5,000 to assist filing the claim. We believe this is unrealistic and may be an attempt by the SEC to discourage the hiring of lawyers. Whistleblowers need robust protection throughout the process. The initial claim must be put together professionally to attract SEC interest. Some whistleblowers are involved in the investigation. Some even wear wires. There is an appeal process if the SEC does not pay a fair reward. Whistleblowers need reliable counsel from beginning to end.

Many lawyers will accept contingency fees in lieu of hourly fees. We charge in the range of 25%-40% depending on the complexity, the time involved, and the costs. The courts may limit the amount attorneys can receive.

See Oversees Shipholding Group, Inc. (attorney fee limited to $25,000 even though a 1/3 contingency fee signed)

Whistleblower Office at SEC

The SEC has a Whistleblower Office which makes public whistleblowing cases and procedures. SEC Website

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