Whistleblowers looking to cash in on the U.S. Securities and Exchange Commission’s (SEC) reward program that has paid hundreds of millions of dollars to tipsters, should avoid first alerting the media, at least on the record — as a prospective whistleblower was denied a reward after the commission ruled that their tip, which prompted an investigation, came via the media.
According to an order from the SEC, in late 2024, its staff denied a whistleblower award claim from a prospective tipster — an employee at a company that “was making false and misleading statements to their investors” about its compliance with certain policies.
The whistleblower contacted an unnamed media outlet with information about the alleged violations, which resulted in the publication of an article that identified the whistleblower and detailed their allegations.
After reading that report, SEC staff opened an investigation into the allegations — and, two days later, the regulator contacted the tipster about their allegations, and to seek other information.
The day after that, the tipster submitted a claim to the SEC’s whistleblower reward program, reiterating the allegations, and citing the media report that prompted the regulator’s investigation.
Yet, the claim for a reward was denied on the basis that the tipster didn’t “voluntarily” provide the information to the SEC — instead, it was provided after the agency’s investigators contacted them, even though it was their tip to the media that generated the inquiry from the SEC.
On appeal, the prospective whistleblower argued that they did submit their tip voluntarily, that the commission’s definition of “voluntary” is unreasonable, and that communications with SEC staff created an expectation that they would receive an award.
However, these arguments were rejected, and the initial decision to deny a whistleblower award was upheld.
The commission said that its definition of voluntary “adheres to the statutory goal” of the legislation that created the whistleblower award program — which aimed to create “a strong incentive for whistleblowers to come forward early with information about possible violations of the securities laws rather than wait until government or other official investigators ‘come knocking on the door’.”
And, while the claimant attempted to argue that they deserve an award because the information provided in response to the commission’s inquiry went beyond what they first told the media, the SEC concluded that this still didn’t meet the “voluntary” requirement, as it was SEC investigators that came to them to obtain that information.
“At its core, the whistleblower program was created to incentivize members of the public to come forward with information concerning potential violations of the Securities Act that could supplement the commission’s own investigative efforts, not merely provide information as a response to them,” the order said.