A tipster who was initially rejected as a whistleblower and another whose lawyer tried to scoop them are among the latest recipients of financial rewards from the U.S. Securities and Exchange Commission (SEC).
The SEC announced on Friday that it has paid a total of $3.6 million to three whistleblowers in separate cases.
The largest award, over $1.8 million, went to a tipster who alerted the SEC to an ongoing fraudulent scheme.
“The whistleblower took immediate steps to mitigate the harm to investors, and provided substantial assistance to the staff,” the commission said in a release, noting that the tip contributed to an enforcement action that “resulted in the return of millions of dollars to harmed investors.”
In another case, SEC staff initially recommended that the whistleblower be denied an award on the basis that the tipster was involved in the conduct that led to the enforcement action.
However, this decision was overturned on review and the whistleblower was granted a US$1.2 million payout after staff reconsidered the claim and decided that the tipster should not be held responsible for the company’s misconduct.
The SEC’s order noted that while they did merit a financial award, the size of that payout was reduced by its findings that the “claimant was culpable for actively participating in and financially benefitting from the fraudulent scheme at the company and that claimant unreasonably delayed reporting to the commission even as [they] became more fully aware of the scheme’s illegality.”
Finally, the SEC also paid US$500,000 to a whistleblower who first reported suspected misconduct to their lawyer. The lawyer used the information to tip off the SEC, seeking the award for themselves.
In granting an award to the original source of the tip, the SEC waived the requirement that the whistleblower file an official tip with the commission, noting that the “claimant provided substantial additional information to assist the enforcement staff’s investigation, all the while reasonably believing that the attorney… had acted on [the] claimant’s behalf in submitting the [tip].”
The tipster appealed their initial award from the SEC, seeking a higher payout.
However, the SEC rejected their appeal noting that while they did assist the investigation, the tipster, “unreasonably delayed” reporting the misconduct.
It found that the tipster waited at least two years to report what they knew to be fraudulent conduct, while investors continued to be harmed. As a result, it concluded that arguments for a higher award were “unpersuasive”.
“These awards also show that the commission will take into account the unique facts and circumstances of each matter, in accordance with the whistleblower rules, when determining eligibility and the amount of the award,” said Jane Norberg, chief of the SEC’s Office of the Whistleblower.
To date, the SEC has paid approximately US$735 million to 127 whistleblowers since issuing its first award in 2012.