A U.S. corporate whistleblower stands to collect up to US$575,000 for tipping off securities regulators after their company’s internal compliance failed to address alleged misconduct.
The U.S. Securities and Exchange Commission (SEC) announced it has granted its whistleblower award for the first time to a corporate officer who reported information to the SEC after their internal compliance process apparently failed. The SEC said that the final payout in the case will be between US$475,000 and US$575,000.
Senior personnel, such as corporate officers and directors, who learn about a fraud through another employee, are generally not eligible for an award under this program. The exception to this exclusion, the SEC notes, is for reports that come more than 120 days after compliance personnel were given the information and failed to adequately address the issue.
“Corporate officers have front-row seats overseeing the activities of their companies,” said Andrew Ceresney, director of the SEC’s division of enforcement. “This particular officer should be commended for stepping up to report a securities law violation when it became apparent that the company’s internal compliance system was not functioning well enough to address it.”
The identity of the officer is protected under the SEC’s whistleblower law and the regulator does not reveal details of cases that generate awards to avoid possibly outing the whistleblower.
The SEC’s whistleblower program rewards tips that deliver original information about a securities fraud that result in an enforcement action with sanctions exceeding US$1 million. The awards range from 10% to 30% of the total sanction.
A common criticism regarding paying whistleblowers is that it could undermine internal compliance systems.
“Receiving information and cooperation from company insiders is particularly useful in the early detection of securities fraud,” said Sean McKessy, chief of the SEC’s Office of the Whistleblower.”We will continue to leverage whistleblower information to help combat securities law violations and better protect investors and the marketplace.”
“Meanwhile, companies must have rigorous internal compliance programs that adequately address and remedy potential violations voiced by their employees as well as by their officers, directors, or other individuals,” adds McKessy.
The SEC reports that it has paid out awards to 15 whistleblowers since its program was launched more than three years ago. In that time, its payouts have totaled nearly US$50 million.
The Ontario Securities Commission (OSC) recently proposed its own version of a whistleblower program, which is modeled on the SEC’s approach. Those proposals are out for comment, and it remains to be seen if the program will be adopted by the OSC.