To ensure that whistleblower awards would not reduce the funds available to victims of securities fraud, Congress established an Investor Protection Fund from which whistleblowers are paid. The balance in that fund as of September 31, 2018, was approximately $300 million.

The SEC has established an Office of the Whistleblower, located within the Division of Enforcement, to administer the awards program. That office has made clear that the SEC considers whistleblower tips to be an extremely valuable enforcement asset:

Assistance and information from a whistleblower who knows of possible securities law violations can be among the most powerful weapons in the law enforcement arsenal of the Securities and Exchange Commission. Through their knowledge of the circumstances and individuals involved, whistleblowers can help the Commission identify possible fraud and other violations much earlier than might otherwise have been possible. That allows the Commission to minimize the harm to investors, better preserve the integrity of the United States' capital markets, and more swiftly hold accountable those responsible for unlawful conduct.

The SEC has issued detailed regulations governing the whistleblower awards program. 17 C.F.R. §240.21F-1 through 17. The regulations provide that a whistleblower's information regarding a securities violation must be submitted via the SEC online portal or described on Form TCR and submitted by mail or fax. If the whistleblower is represented by an attorney, the tip can be submitted anonymously, without disclosing the name or other identifying information of the whistleblower.

B. Subjects and Sources of Whistleblower Tips

The SEC has reported that among the most common securities violations identified in whistleblower tips are offerings frauds (including Ponzi schemes), false or misleading corporate disclosures and financial statements, market manipulation, insider trading, Federal Corrupt Practices Act violations (e.g., bribes to obtain business abroad), and the sale of unregistered securities.

The number of whistleblower tips has increased each year since the award program began in 2012. According to the SEC, the states generating the greatest number of whistleblower tips in 2018 were California, New York, Florida, Texas, and New Jersey. Individuals outside the United States can also submit tips and apply for monetary awards. In fiscal year 2018, the SEC received whistleblower tips from individuals in 72 foreign countries. Canada, the United Kingdom, and Australia produced the highest number of tips from outside the United States.

C. SEC Use of Whistleblower Information

Whistleblower tips are first evaluated by the Office of Market Intelligence in the SEC's Division of Enforcement. Information warranting further investigation is then referred to Enforcement's investigative attorneys. The SEC can use information from whistleblower tips to initiate a new investigation, contribute to an existing investigation or litigation, or trigger an examination of a regulated entity. The SEC has reported that its Whistleblower Office is tracking over 900 matters in which a whistleblower’s tip led to the opening of an inquiry or investigation, or has been considered in connection with an ongoing investigation.

Tips that are specific, credible, and timely, and which are accompanied by corroborating documentary evidence, are the most likely to become the basis for an investigation or enforcement action. An effective whistleblower tip will usually identify individuals involved in a securities violation, identify specific fraudulent transactions, and/or provide non-public evidence of a securities fraud.

After submitting an initial tip, a whistleblower may submit additional information or materials to support the allegations. The SEC usually sends acknowledgement notices confirming receipt of the initial tip. No acknowledgement is ordinarily provided in response to additional information.

D. Decisions On Whistleblower Awards

The time between submission of a whistleblower tip and a decision regarding a monetary award can be several years, particularly when the investigation is especially complex or is followed by extended litigation. If the SEC ultimately resolves the matter by obtaining final judgments or orders that impose monetary sanctions exceeding $1 million, the SEC posts a "Notice of Covered Action" announcing the outcome. The $1 million figure may include amounts collected in related actions filed by other agencies based on the same information provided to the SEC by the whistleblower. In fiscal year 2018, there were 142 such "over $1 million" judgments announced.

A whistleblower has ninety calendar days after publication of the relevant Notice of Covered Action to apply (on Form WB-APP) for an award related to that matter. Whistleblowers or their counsel should regularly review the monthly postings, or to sign up to receive regular emails alerts, so that they know when a relevant Notice of Covered Action is posted.

Upon receiving an award application, SEC staff prepares a recommendation addressing (i) whether the whistleblower meets the criteria for an award and, if so, (ii) the percentage of the monetary recovery (between 10% and 30%) the whistleblower should receive. An award percentage can be increased if the information provided by the whistleblower was particularly important, the whistleblower provided a high level of assistance during the investigation or litigation, there were substantial law enforcement interests at stake, or the whistleblower reported the violation to his or her employer. An award may be reduced if the whistleblower was involved in the misconduct, interfered with the employer's internal compliance systems, or unreasonably delayed in reporting the violation to the SEC.

The award percentage can also be increased if the whistleblower's information allowed the SEC to resolved the enforcement action faster or with fewer resources than would otherwise have been the case. The SEC also considers whether the whistleblower's information made it possible to assert additional claims, add additional defendants, or pursue related actions such as a parallel criminal prosecution.

The percentage determination ultimately depends on the particular circumstances of each case, rather than any mathematical formula. Because many of the factors considered by the SEC are highly discretionary and fact-specific, it is crucial that the whistleblower's award application be prepared by experienced counsel who is familiar with the SEC regulations and sensitive to the SEC's priorities and internal review processes.

After completing its review, the SEC staff issues a preliminary determination. If the claim is denied and the whistleblower does not request reconsideration, the preliminary determination becomes the final SEC decision. If the staff proposes an award, or if the whistleblower requests reconsideration of the staff determination, the matter is submitted to the Commissioners themselves. If no Commissioner requests a review of the matter within 30 days, the staff's determination becomes the final order of the SEC. Before the final order is posted on the SEC's website, information identifying the whistleblower is deleted or obscured.

E. Illustrative SEC Whistleblower Awards

The SEC has vigorously promoted the whistleblower program and has made large monetary awards to whistleblowers. Since the beginning of the program in 2012, the SEC has awarded more than $326 million to whistleblowers.

In fiscal year 2018 more than $168 million was awarded to 13 individuals: $83 million (nearly $50 million to two whistleblowers jointly and more than $33 million to a third); $54 million ($39 million to one whistleblower and $15 million to another); $16 million to two whistleblowers; $4.1 million to a foreign national working outside the United States; nearly $4 million to overseas whistleblower; $2.2 million to former company insider; $2.1 million to a former company insider; and additional awards of approximately $1.5 million and $1 million.

A whistleblower need not be affiliated with the company or entity involved in the violations being reported. The SEC has indicated that while most of award recipients to date were current or former insiders, award recipients have also included fraud victims, professionals working in the industry, individuals with personal relationships to the violator, and individuals with special expertise in the securities markets.

For more detailed information on the SEC's whistleblower awards program and the amounts awarded, see the SEC's 2018 Annual Report To Congress on the Whistleblower Program, available at www.sec.gov/whistleblower.

II. Your Rights as an SEC Whistleblower

A. An Employer Cannot Bar You From Reporting Securities Fraud

SEC regulations prohibit any conduct intended to prevent an individual from contacting the SEC to report a possible securities violation. Specifically, SEC Rule 21F-17(a) states that:

“[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”

Consequently, neither your employer nor your former employer (or anyone else) can keep you from reporting possible securities fraud to the SEC. Indeed, under Rule 21F-17(a) it is unlawful to require a worker to sign an employment agreement, confidentiality agreement, or other document barring the employee from reporting possible securities fraud to the SEC. Additionally, employers may not require such a non-disclosure provision in a severance or settlement agreement when a worker leaves the company.

The SEC has made clear that such provisions are unlawful and unenforceable. In several cases, the SEC has imposed penalties on employers who included such non-disclosure provisions in worker agreements. If you have been asked to sign an agreement that would restrict your ability to disclose information to the SEC, or have already signed such an agreement, we encourage you to consult an attorney with SEC whistleblower experience.

Two federal statutes are of particular importance is protecting whistleblowers who report securities violations to the SEC.

B. Sarbanes-Oxley Protections

Section 806 of the Sarbanes-Oxley Act ("SOX"), 18 U.S.C. § 1514A(a)(1), protects employees of publicly-traded companies (and employees of certain of subsidiaries and contractors) against retaliation after an employee has lawfully reported (or assisted in the investigation of) conduct the employee reasonably believes violated certain federal laws or regulations, including "any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders."

This anti-retaliation protection is available if the whistleblower's information or assistance is provided to any of the following: the SEC; any other federal regulatory or law enforcement agency; a member or committee of Congress; or a person with supervisory authority (or the authority to investigate or terminate the misconduct) at the whistleblower's employer. SOX also protects a covered employee from retaliation if the the employee initiates or participates in a proceeding relating to an alleged violation of, inter alia, the securities laws.

A retaliation complaint under Sarbanes-Oxley must be filed with the U.S. Department of Labor (DOL) within 180 days after the retaliation took place or the date the employee became aware of the retaliation, whichever is later. If DOL does not issue a decision within 180 days after receiving the complaint, the employee has a private right of action, which allows the employee to seek relief in federal court, including a jury trial. Employers may not negate this right of action by requiring that retaliation claims be submitted to arbitration.

To prevail in a retaliation claim under SOX, the employee must show that the whistleblowing contributed to the employer's decision to retaliate. If successful, the whistleblower may be entitled to reinstatement, back pay, compensatory damages, and the attorneys’ fees and costs sustained as a result of the retaliation.

C. Dodd-Frank Protections

For individuals who report possible securities fraud to the SEC, the Dodd-Frank Act provides even more powerful protection than is available under SOX. Section 922(a) of Dodd-Frank provides that no employer may "discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against" a whistleblower because of any lawful act done by the whistleblower in, among other things, providing information as part of the SEC's whistleblower program or participating in any SEC action related to the whistleblower's information. 15 U.S.C. § 78u-6(h)(1)(A). The Dodd-Frank anti-retaliation protection is not limited to workers of public companies, their subsidiaries, and contractors, but applies to retaliation by any employer.

The SEC may sue an employer who violates these anti-retaliation provisions.17 C.F.R. §240.21F-2(b)(2). As of late 2018, the SEC had filed three such anti-retaliation actions.

Additionally, Dodd-Frank gives whistleblowers the right to file a retaliation complaint in federal court. There is no requirement that the whistleblower first complain to the Department of Labor -- the whistleblower may file a judicial complaint as soon as the employer takes retaliatory action. In most cases, a retaliation claim can be filed up to three years “after the date when facts material to the right of action are known or reasonably should have been known to the employee.”

Thus, if you are a whistleblower who has reported a possible securities law violation to the SEC and have been retaliated against because you blew the whistle, you may be able to sue your employer and obtain twice the pay you lost (with interest), reinstatement to your position, your attorneys’ fees, and reimbursement for certain costs.

It is important to note that the Dodd-Frank anti-retaliation provisions do not protect you if you have not submitted a whistleblower tip to the SEC. In July 2018 the U.S. Supreme Court held that only individuals who have provided the SEC with information relating to a securities law violation are "whistleblowers" within the scope of the Dodd-Frank anti-retaliation provisions. Digital Realty Trust, Inc. v. Somers, 138 S. Ct. 767 (2018).

A worker who has become aware of information relating to a securities fraud must seriously consider to whom that information will be disclosed and the sequence of any disclosures. If the information is first disclosed to the employer and the worker suffers retaliation before the information has been submitted to the SEC, the worker may not have a claim under the Dodd-Frank Act. In contrast, if the information is submitted first to the SEC, the whistleblower is protected under Dodd-Frank. A prospective whistleblower should thoroughly discuss these issues with our attorneys or other experienced whistleblower counsel.