Since the creation of the U.S. Securities and Exchange Commission's whistleblower program in August 2011, thousands of whistleblowers have submitted complaints about corporate wrongdoing, in hopes of receiving a monetary award. Corporations have long expressed concern that the program provides strong financial incentives for informers to bypass internal reporting and compliance systems and instead raise potential securities law violations directly with the SEC. The program — established as part of the 2010 Dodd-Frank Act financial reforms — offers monetary awards to whistleblowers who voluntarily provide the SEC with information leading to a successful enforcement action. Informers receive up to 30 percent of any money collected as a result of the action, provided the violation resulted in sanctions of at least $1 million. The specter of such large bounty awards for whistleblowers prompted fears within the business community of unwarranted SEC investigations based on frivolous claims. Worse yet, in bypassing the internal reporting controls, there is the concern that whistleblowers will deprive the company of a means to address wrongful conduct internally, as many companies have gone to great lengths to try to do in the decade since the passage of the Sarbanes-Oxley Act.
The SEC is now starting to make payments to whistleblowers, including within the past few weeks. This column briefly describes the SEC's procedure for evaluating whistleblower claims, and examines the two cases in which informants have successfully sought and obtained awards. It then evaluates lessons that can be learned from these early payment decisions by the SEC under the whistleblower program.
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