SEC to Give Biggest-Ever Whistleblower Award

The Securities and Exchange Commission announced on Monday an expected award of more than $30 million to an unidentified whistleblower who provided key original information that led to a successful SEC enforcement action.

The SEC said the award would be the largest ever made by the agency’s whistleblower program to date and the fourth award to a whistleblower living in a foreign country, demonstrating the program’s international reach.

“This whistleblower came to us with information about an ongoing fraud that would have been very difficult to detect,” said SEC enforcement director Andrew Ceresney in a statement. “This record-breaking award sends a strong message about our commitment to whistleblowers and the value they bring to law enforcement.”

The SEC’s whistleblower program rewards original information that results in an SEC enforcement action with sanctions of more than $1 million. Whistleblower awards can range from 10 percent to 30 percent of the money collected in a case.  The money paid to whistleblowers comes from an investor protection fund established by Congress at no cost to taxpayers or harmed investors.  The fund is financed through monetary sanctions paid by securities law violators to the SEC.  Money is not taken or withheld from harmed investors to pay whistleblower awards.

“We’re pleased with the consistent yearly growth in the number of award recipients since the program’s inception,” said Sean McKessy, chief of the SEC’s Office of the Whistleblower.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. The previous high for an SEC award to a whistleblower was $14 million, which was announced in October 2013.

A Washington, D.C. law firm known as Phillips & Cohen LLP said Monday it had represented the whistleblower. The firm claimed the unidentified whistleblower would receive at least $30 million to $35 million for providing information and assistance that led to a substantial recovery by the federal government.

“Our client exposed extraordinarily deceitful and opportunistic practices that were deeply entrenched and well hidden,” said Erika A. Kelton, an attorney with the firm, which specializes in representing whistleblowers. “Federal regulators never would have known about this fraud otherwise, and the scheme to cheat investors likely would have continued indefinitely.”

To encourage whistleblowers who often put their jobs and careers at risk by reporting wrongdoing, the Dodd-Frank Act allows SEC whistleblowers to remain anonymous to the fullest extent allowed by the law. The whistleblower in this case is a foreign citizen, according to the firm.

“I was very concerned that investors were being cheated out of millions of dollars and that the company was misleading them about its actions,” said Phillips & Cohen’s whistleblower client in a statement. “Deception had become an accepted business practice.”

Phillips & Cohen said its client had provided extensive assistance to the SEC. The company went to great lengths to conceal the fraud, which raked in millions for the company.

“The SEC was extremely responsive and acted quickly after our client provided detailed information about the fraud,” Kelton said. “It immediately launched an investigation.”

Kelton praised government enforcement officials for their work, particularly the SEC Whistleblower Office, the SEC Division of Enforcement, the Justice Department’s Fraud Section and the Federal Bureau of Investigation.

“This case demonstrates how effective the SEC whistleblower program is,” Kelton said. “Federal enforcement officials worked closely with the whistleblower to stop a scheme that hurt investors, and by doing so the government was able to hold wrongdoers accountable for their actions. Whistleblowers and investors are fortunate to have Sean McKessy leading the SEC Whistleblower Office.”

Other attorneys were gratified at the whistleblower award. “This award is significant for a number of reasons," said Christopher Robertson, a partner with Seyfarth Shaw in Boston and a former senior counsel in the SEC's Enforcement Division. "First, it reinforces the SEC’s commitment to the bounty program established under Dodd-Frank and its willingness to pay bounties where original information leads to significant recoveries. Second, the size of the award will likely encourage additional whistleblowers to come forward, knowing that they can come forward and obtain a significant recovery while remaining anonymous and protected.”

“The SEC’s bounty award strengthens the incentives for an employee, particularly one in a foreign country, to report allegations of misconduct to that agency rather than seeking to address the issue internally,” said Jason Knott, a partner at Zuckerman Spaeder LLP in Washington, D.C,. A number of courts have already ruled that Dodd-Frank does not protect a foreign employee’s internal reporting of misconduct overseas. Now, those employees have the added incentive of a potentially life-changing bounty, which will serve as additional motivation for them to go to the agency first.”

The SEC awarded its first whistleblower under the program following its inception in fiscal year 2012.  The program awarded four more whistleblowers in FY 2013, and has awarded nine whistleblowers in FY 2014.

For more information about the whistleblower program and how to report a tip, visit

For reprint and licensing requests for this article, click here.