A tipster who posted a report online alleging an ongoing fraud, and then emailed it to the U.S. Securities and Exchange Commission (SEC), is getting a US$14 million reward from the regulator.
But the co-author of the report is getting nothing.
The regulator’s investigation produced a successful enforcement action that resulted in millions of dollars being returned to investors.
According to the SEC’s order, two people made claims for whistleblower awards, and both were initially denied on the basis that they didn’t qualify as whistleblowers under the SEC’s requirements.
Both appealed, and the commission eventually reversed its decision for the tipster who actually communicated with the SEC, even though they didn’t formally file a whistleblower claim for four years, and didn’t strictly meet the requirements for a reward.
Nevertheless, the SEC said in its order that “it would be in the public interest and consistent with the protection of investors” to exercise its discretionary authority to waive certain filing requirements given “the unusual facts and circumstances” of the case, including that the tipster sent the report to an SEC lawyer three days after posting it online and later followed up with that lawyer.
Additionally, the SEC concluded that the information in the online report was “credible and of high quality, and caused enforcement staff to open an investigation that ultimately resulted in the [return of] millions of dollars to harmed investors.”
However, the commission again turned down the other purported tipster — the co-author — because that person never submitted a formal whistleblower tip.
“In rejecting claimant 2’s award claim, we do not intend to diminish claimant 2’s role in investigating the company and in publicly exposing the wrongdoing at the company through writing and publishing the online report. Nor do we wish to discourage others from undertaking similar efforts,” the SEC said in its order.
However, the SEC noted that the whistleblower rules “unambiguously require individuals to provide their original information directly to the commission and in the manner prescribed by the rules, if they wish to pursue a whistleblower award.”
“This case demonstrates the importance of whistleblowers reporting directly to the SEC so that the agency can promptly investigate allegations of wrongdoing,” said Creola Kelly, chief of the SEC’s Office of the Whistleblower, in a release.
The SEC has awarded approximately US$1.2 billion to 249 whistleblowers since issuing its first award in 2012.