SEC Encourages Whistleblowers to Come Forward with Recent $600,000 Award

8 May 2015

In a week of mixed messages for potential whistleblowers, the SEC announced a $600,000 whistleblower award in connection with its first anti-retaliation enforcement action, while the Wall Street Journal, relying on recently obtained public records, reported that 83% of the 297 whistleblowers who have applied for awards since 2011 have not yet received a decision from the SEC.

In announcing the $600,000 award, Sean McKessy, Chief of the SEC’s Office of the Whistleblower stated, “My hope is that the award today encourages potential whistleblowers to come forward in light of our demonstrated commitment to protect them against retaliatory conduct and make significant financial awards to whistleblowers who suffer employment hardships as a result of reporting possible securities law violations.” While the SEC took the opportunity to tout the fact that it has awarded 17 whistleblower awards totaling over $50 million since the program’s inception in 2012, it has not addressed the concern that the program is backlogged and whistleblowers may have to wait for years in limbo before receiving a judgment on their claim from the SEC.

Despite a lack of certainty around whether a whistleblower will ultimately be able to collect a reward, the $600,000 figure – representing 30% of the penalty collected in that matter and the maximum percentage allowed under the SEC’s whistleblower program – will certainly provide an incentive for future whistleblowers to come forward.  At the same time, it serves as a cautionary tale for companies to crack down on even the appearance of internal retaliation after a whistleblower comes forward.  In the matter of Paradigm Capital Management, Inc. and Candace King Weir, the SEC found that Paradigm took retaliatory action against Ms. Weir by “removing the whistleblower from the whistleblower’s then-current position, tasking the whistleblower with investigating the very conduct the whistleblower reported to the SEC, changing the whistleblower’s job function, stripping the whistleblower of supervisory responsibilities, and otherwise marginalizing the whistleblower.”

Companies looking to protect themselves should ensure that they have appropriate procedures in place for receiving whistleblower complaints, as well as a system for responding to them and protecting the whistleblower from retaliation.